Basic points regarding mortgages

Despite South Africa being a country unlike many European countries in which the average middle class person does aspire to homeownership, the actual mechanics and procedures involved in buying a home remain a mystery to large numbers of people, says Tony Clarke, MD of Rawson Properties.

Mortgage bonds and the role of the bond originator, says Clarke, are often not understood.

“Here at Rawson’s,” he said, “we find that time and again we have to explain to the public that the bond originator is there not to sell the buyer a product that suits the company but to get the buyer the best possible deal. That is an important concept which is sometimes not understood.”

The bond originator’s work, said Clarke, costs the buyer nothing – his fee is paid by the bank – and there are no hidden costs in their deals. Furthermore, the originator will steer the bond applications through the bank leaving the client free to get on with the other business – and by approaching two, three or four banks, you will get the best possible mortgage package, including the best interest rates.

Confirmation of an approved mortgage bond will usually be received within two days but it is possible the bank will want to talk to the applicant regarding matters not clarified - and this will extend the wait period.

It also has to be realised, said Clarke, that an initial “approval” is not the same as the “final grant”. This can only be made once the valuation of the home has been confirmed by the bank which, rightly, does not want to see its clients overpaying for a property. The buyer is responsible for ensuring that the bank has all the details on which a valuation is based.

The deed of sale, said Clarke, is a legal document subject to the laws laid down in the Alienation of Land Act. DIY attempts to apply for bond finance without professional help is likely to cost the buyer in the long run.

Once a bond is granted, said Clarke, it has to be a top priority of the buyer to service it on time each month. Any failure to do so would incur increased interest payments and will adversely affect the applicant’s chances of getting another bond later, e.g. for a home improvement or a second home.

“The whole credit situation surrounding bond awards is now strict,” said Clarke, “and it will pay the applicant to get rid of any overdue debts before he makes his application. This will ensure that he is not blacklisted by a credit bureau.”

At current rates, said Clarke, mortgage bonds are good value, especially in comparison to the rates charged on other purchases. Those who are still puzzled by the bond application system should now be talking to originators like Rawson Finance about the chances of getting a bond.

“If you then find that you do not qualify for the sort of bond you want, my advice is that you lower your ambitions and buy at the level the bank will allow you to. Three to six years later you will then be able to sell, pay a substantial deposit on a new home and upgrade. This is preferable in every way to renting all your life, which is only a good plan if you are investing your spare cash elsewhere. Pensions in SA are not big – housing is the means to secure a retirement you can afford – because by then you will have paid for your home.”

Article by: