Costs of being a homeowner
OWNING a home is one of the smartest ways of creating wealth. There are, however, costs attached to buying your home and sometimes first-time home buyers are caught unaware when calculating how much they can afford to pay on their monthly bond instalments.
Marius Marais, CEO of FNB Housing Finance, says first time home buyers must consider not only the purchase price of the house but also the bond costs, transfer fees, insurance premiums, monthly administration fees and the ongoing maintenance cost of the property.
"It is important that home buyers don't overextend themselves financially and end up regretting buying the house and realising their dreams of becoming homeowners.
"Practical budgeting to determine what you can afford, full awareness of all the costs involved and a bond that is designed to help you become a homeowner, will help prevent buyer remorse," Marais says.
The following costs are associated with the purchasing of a home:
- Legal Costs: These are bond registration and property transfer fees paid to attorneys.
- Initiation and monthly bond administration fees that are payable to the bank by the home buyer.
- Life cover: the insurance cover settles your bond in the event of death and permanent disability
- Property insurance: for the protection of the house again and so on. These costs vary and are determined by the customer's age and the registered bond amount.
- Municipal costs: As a homeowner you will also need to pay for services provided by the municipality such as water and electricity as well as sewerage and refuse removal. The municipality will bill you once a month for these services.
- Maintenance Costs: In order for your property's value to increase it is important to maintain it at all times. Maintaining your home will cost you money in some instances.
It is ideal to put away money every month for maintenance such as to beautify your garden, paint and repair your home as well as to improve your property through additional security measures.
"To ensure you have all the correct facts, you should speak to your bank consultant, who will be able to inform you exactly what you will be charged for and how much these costs will be."
Choosing the right financial institution.
- It must be a registered financial institution.
- It must give you details of the terms and conditions of the bond.
- It must clearly state your loan term.
The impact of the loan term.
The loan term can make a difference to the total cost of your new home
For example, a R30000 loan at 10,5 percent over 20 years (240 months) would require a monthly repayment of R3000. By the end of 20 years you will have paid R720000.
The same loan, at the same interest rate over 30 years requires a lower monthly repayment of R2744. However, the total cost of the loan would be R988000.
You may choose between a fixed or variable interest rate. The variable interest rate is linked to the Reserve Bank's lending rate and will change when the lending rate moves up or down. Fixed interest rates do not change but are usually higher than the variable rate. The fixed rate is only fixed for a pre-determined period. To choose between a fixed or variable rate is difficult. If you are on a fixed rate, you enjoy the security of a stable instalment when interest rates fluctuate.
You may be paying a lower interest rate when the variable interest rate increases severely but you may also pay more if the variable interest rate keeps going down.
A monthly repayment of R2895 on a R300000 loan at 10 percent interest rate could increase to R3950 if the interest rate increases to 15 percent, which will have a major impact on your monthly budget.
Paying a deposit
The main advantage of paying a deposit is that your overall bond amount is reduced and this lowers your monthly bond instalments. However, finding the money for a deposit is one of the biggest stumbling blocks for most first time home buyers.
Some home buyers often make the mistake of taking out a separate loan to get funds for the required deposit. This will definitely increase your monthly expenses and reduces the amount you have each month to pay towards your bond instalment. It could even lead to a smaller bond amount being approved.
"Smart Bond from FNB does not require an upfront deposit and is tailored to help first time home buyers," says Marais.
- FNB Housing Finance Call Centre: 0860 644 644