We are so lucky that interest rates have come down to historical low figures very similar to those when I started in the property industry in 1975 – around 7.5 percent.
In fact, it is just about the same cost to buy as you are paying for rent at this time so it is a good time to consider buying.
So, how much can one afford to buy for?
Platinum Global always works with pre-qualified buyers.
That means that a potential buyer has made a request to a typical bond originator — they help you find the best bond that you can afford — and it makes sure that when you make an offer you can afford to pay the bond.
Traditionally, you are able to afford around 25 to 33 percent of your gross income on your living expenses whether you buy or rent.
Nowadays there are stricter requirements before the banks can give you a loan and essentially they will take your gross income, less anything that you need to pay to see what you have left over to buy your house.
Typically they firstly take off your income tax, pension and medical aid.
Then they will take off your clothing accounts, an allowance for water and electricity, school fees, food, car payments, etc.
Whatever is left over is what you can afford to take a bond for.
So if you don’t have a car to pay off and you pay cash for clothing you will get a much higher bond than somebody who has to pay these accounts each month.
It’s therefore advisable to pay off your accounts before applying for a loan to buy your own home.
A couple of points to remember:
- Shop around between the banks — the bond originator will do this for you — to get the best interest rate. The lower the rate the more you can borrow.
- Try to pay a deposit because a 100 percent bond will be at a higher interest rate than an 80 percent bond.
- Pay your bond off as quickly as possible. You really don’t want a bond if you don’t need it.
- Pay some of your bonus, your overtime, any money you can lay your hands on to get your bond paid off as quickly as possible.
Remember you are looking at around R1 000 per R100 000 payment, so if you owe R200 000 less on your bond your repayments effectively go down by R2 000 per month and anyone would be happy to have an extra R2 000 to play with each month — my advice is to pay it off your bond!
- Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant.