Once you have found the home you want, and are ready to make an investment, financial considerations become paramount. When taking out a home loan you remain the registered owner of the property, but your house is offered as security. Ensuring that you are aware of all the obvious and hidden costs is thus essential to maintaining your investment. Figuring out what bond amount you are eligible for and what your monthly payments would be is a process that can seem daunting, but a few considerations and calculations will set you on your way.
Getting a Loan
The National Credit Act, which came into place July of 2007, puts the onus on banks to ensure that you (the buyer) understands and can afford all the costs, and that the property you wish to buy is of sufficient value. When applying for a home loan the bank will require certain information in order to do an affordability assessment. Your gross income, minus your expenses, is used to determine how much you can afford each month and what amount you qualify for. This amount is generally worked out to be about 30% of your total monthly income (which will include your spouse’s income if applicable).
Monthly Payments
Your monthly instalments are made up of a number of costs. House owner’s insurance, a life insurance premium and a monthly administration fee are all added onto the basic instalment amount. This basic instalment is made up of your monthly amount plus the interest garnered on your loan. Different banks calculate your monthly amount in slightly different ways, but you can phone your bank in order to get information on their specific process for doing this.
The interest rate on your loan is generally also specifically worked out for you by the bank, and can fluctuate. As a guide though, you can take into consideration that the current base rate is 14.5%. Experts also tend to recommend that you decide on a fixed interest rate rather than a variable one, as fluctuating rates can exceed what you’d like to pay in the future.
Time
The important thing to remember in choosing a home loan and financing your home is that while buying a house is an incredibly good investment, you will be responsible for the monthly payments for a long period of time. Home loan repayments can be paid over a 20 year period, and you should take into account the possible fluctuations in your own future income. Bear in mind that paying a home loan off in fewer years does not necessarily mean that you’ll pay less, as this can impact on the banks profitability.
Online Tools
There are a number of useful online tools that can be used to calculate the various payments necessary for your home loan payments. You can find an online property calculator here.
With all these considerations in mind, you can move toward buying your home, a long term investment that will offer you personal security and be an asset to your financial growth.
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