Deposit or 100% bond?
PUBLISHED 11 NOV 2014
or 100% bond?
There are many benefits to putting down a
deposit for your first home, but in today’s tough economic climate, it may be
more realistic to take out a 100% bond. How do you decide what’s best for you?
According to Christa Schimper, regional sales
manager at ooba, South Africa’s largest bond originator, there has been an
increase in first-time home buyers, who traditionally don’t have easy access to
a deposit. There has also been a slight increase in banks granting 100% bonds.
“Trends show that 53,2% of all applications
received by ooba are from first-time home buyers, so it is essential that these
candidates evaluate their financial situation before applying for a home loan,”
importance of having a deposit
She says that estate agents and sellers are
more confident when a prospective buyer has a deposit. The buyer's chances of
getting a bond approved are higher, so their offer is more appealing than a
buyer whose offer is conditional on the sale of another property or raising a
addition, when the banks consider whether or not to grant a home loan, they
take into account factors such as earnings, disposable income, credit record,
age, length of time the applicant has been in their current job and the size of
larger the deposit, the smaller the risk for the bank when granting a home
loan, and the more the homebuyer saves over the bond term.
are also more likely to be negotiable on the interest rate, because they are
taking a lower risk with a deposit. “By providing capital upfront in the
home-buying process, the amount owed on the property is decreased, so a smaller
bond is required, which significantly reduces the amount of interest owed,”
for instance, a home buyer purchases a R1 000 000 property with no deposit at a
9.25% interest rate, they will pay R9 158.57 per month over 20 years. At the
end of the bond term, they will have paid back R2 198 080.40.
the other hand, with a R100 000 deposit, the monthly repayments will be R8
242.80, and the total repayment will be R1 978 272.36. If the deposit is added
to this, the total still only comes to R2 078 272.36 – making the total
repayments R119 808.04 cheaper than buying without a deposit. “The example of
R119 808 is a significant saving,” says Schimper. “By putting down a deposit,
you will avoid paying interest on that amount of money for 20 years.”
if you don’t have the cash
course, not everyone has a healthy bank balance when they start house-hunting.
you can’t put down a deposit, a 100% loan will still allow you to pay towards
your own property instead of renting. Sometimes putting down a deposit may even
compromise your ability to have enough funds for transfer and registration
costs. However, this may mean that you have to apply for additional finance and
face a higher rate repayment.”
get an idea of what property price is affordable, and the likely chances of
getting approved for a home loan, Schimper suggests getting prequalified with a
bond originator, which is a free service that ooba provides prior to the home
buying process. Then, once you have an indication of the deposit needed, you
are able to consider the best approach needed to obtain the money.
can take out a short-term loan of up to R150 000 to fund the deposit,” says
Schimper. “Of course this means that you are paying interest on that loan, and
it may reduce your short term cash flow, but it could make a huge difference to
your chances of approval.”
home buyers can also turn to family members for a loan with a preferential
interest rate or consider buying the property with a partner who can help to
fund the deposit.
agreements need to be carefully documented to avoid any later confusion, but
sharing the loan with a partner or family member can ease the financial burden
considerably,” she concludes.