Home loans decoded: everything you need to know about borrowing to buy

You've decided to take one of the biggest financial steps of your life and become a homeowner! The odds are that you'll need a home loan to make your dream a reality. Jawitz Properties takes a deep dive into home loans, how to apply for one and everything else you need to know. 

How to apply for a home loan in South Africa

Each bank in South Africa has its own rules, criteria and formulae for determining who they will grant a home loan to, how much money they will lend to each applicant and at what interest rate. The appetite for risk between the various banks can vary greatly, so it is hugely beneficial to apply to all the banks. Even if you have had personal or business accounts with a particular bank for decades, that bank may not be the one to offer you the best home loan deal. 

Fortunately, there is an easy way to submit your home loan application simultaneously to all of South Africa's major banks: ooba's bond origination service. Bond origination services will literally "shop around" for the best home loan deals for you. Depending on your circumstances, certain banks may reject your application while others accept it. In other cases, a particular bank may offer you a more preferential interest rate. You'll only see the full picture of your options if you use a bond originator to apply for your home loan.

Applying for a bond involves a significant amount of paperwork, but the good news is that when you apply through a bond originator, you'll only have to fill out one set of forms and provide one set of financial statements and other information.

Interest rates unpacked

The interest rate you are offered by the banks will vary according to the current repo rate and your personal circumstances. Factors that the bank will take into consideration include your credit score and payment history, as well as the prevailing economic conditions.

This rate is not set in stone and your monthly payment amounts will rise or fall with any fluctuation in the repo rate. The repo rate is the rate at which the South African Reserve Bank lends money to South African banks. These banks will in turn lend money to their clients at or around the prime interest rate, which is higher than the repo rate. If you have an excellent credit score and are not deemed a high risk, a bank may offer you a rate that's slightly below prime. In the world of home loans, that is the ideal offer to get.

On 19 September 2024, South Africa's interest rate was cut by 25 basis points to 8%. This is the first interest rate since 2020 and it is hoped to be the first of more rate cuts to follow.

Top tips for paying off your home loan early

Paying any spare money into your home loan can reduce the duration of a home loan in jaw-dropping proportions. If you're able to pay even R1000 a month extra into your bond, it will make a significant difference. Similarly, if you receive any lump sum payments (such as a Christmas bonus, tax refund or profit share, for example), putting these amounts into your home loan can shave years off the duration of your loan. 

The surprising impact of making extra payments into your home loan can be immediately seen, thanks to ooba's extra payments calculator. Let's assume that your current bond debt is R920 000, your remaining bond term is 18 years and your interest rate is 8%. Making a once-off overpayment of R10 000 can reduce your remaining payment term to 16.21 years and reduce your total loan amount by R170 040.

At face value, it may seem impossible to put aside even R1000 a month. However, a lifestyle audit may reveal some surprising ways to save, especially if you bear in mind the long-term goal of having no monthly bond to pay! Look at what you spend on dining out, impulse shopping and entertainment subscriptions, to provide just a few examples.

If you have an emergency savings fund, consider investing this money in your bond, especially if you have an access bond facility. This gives you the best of both worlds: access to your funds when you need them and extra capital invested in your bond, which will lower the amount of interest you pay every month.

If you want to know more about how best to invest in real estate, get in touch with the Jawitz Properties team.  No question is too small or too big when it comes to your dream of being a homeowner.