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What is a mortgage, and what are the benefits of different kinds of mortgages?

Simply put, a mortgage (home loan or bond) is a loan that a home buyer obtains directly from a lender to purchase real estate. The mortgage is a loan on the property that secures a promissory note (promise to repay the debt) that states the terms of the loan, including the interest rate and the numbers of payments. A mortgage is registered against the title deed of a property.

The most popular mortgages available to home buyers today can be divided into two general categories: those which offer fixed interest rates and monthly payments, and those where one or both of these factors are adjustable.

Fixed rates: With fixed rates you always know what your monthly capital and interest payment will be, so your basic housing cost will remain unaffected by interest rate changes for a specific period of time.

What is mortgage origination?

The number of products in the home loan market has grown significantly over the last decade and it is becoming increasingly difficult for the home buyer to obtain objective information about different options. Mortgage origination allows buyers to compare packages from different banks and gives the highest quality of independent advice on choosing a home loan best suited to their needs, without any hassles or pressure from sales staff. A company that offers this service is called an originator.

Mortgage originators offer:
CHOICE
Buyers can compare available packages from different banks.
ADVICE
Expert, impartial advice is given by experienced, trained consultants.
ASSISTANCE
They provide practical assistance where necessary.
PROCESS
The entire process is quick, simple and effective.
SPEED
Response time is speedy.
CONSULTANTS
Easy access is provided to qualified, professional consultants.
REPORTS
Regular feedback on the progress of the application is given.
TIME
Time and effort is saved.

Am I obliged to accept any of the loans?
No, there is no obligation to accept any approved home loan that a mortgage origination company has sourced on your behalf.

How does the mortgage origination process work?

STEP 1
You sign an agreement to purchase a home.
STEP 2
The estate agent asks how your home will be financed.
STEP 3
The estate agent obtains the necessary information from you and forwards this information to the mortgage originators consultant .
STEP 4
The consultant contacts & advises you on the different bank options.
STEP 5
You, the purchaser, choose an option.
STEP 6
The consultant completes the documentation and submits it to the bank of your choice.
STEP 7
The consultant communicates the progress and outcome to you.
STEP 8
The consultant confirms your acceptance of the home loan with the bank.
STEP 9
The consultant informs you for the legal requirements and does follow up calls with the transferring and mortgage attorneys.

How do I choose the right lender?

Before someone lends the money to purchase your home, they'll want to know a lot about you. And you're entitled to know as much as possible about them, too.

It's important because getting a mortgage is not just a one-time signing of documents, a handshake and a check. You will be depending on your lender to fund the loan on time as promised and, over the life of the loan, to keep accurate payment records, pay your insurance (if included in your monthly payment) and provide many other continuing services.

Look for a lender that has the authority to approve and process your loan locally. It's easier to discuss the status and conditions of your loan directly with the person who will approve your loan locally. It's easier to discuss the status and conditions of your loan, rather than some faraway loan committee. It's important that your lender knows homes values and conditions in your local area. And while biggest doesn't always mean best, financial stability and a reputation for satisfying customers are two essential considerations.

Talk to your Chas Everitt real estate specialist about the lenders you have in mind. Experienced agents are quite familiar with local lenders and can give you sound advice about a lender's reputation, qualifying procedures, and the unique programs and benefits they offer home buyers.

How do I apply for a home loan?

All major banks have a home loan department or you can contact your bank manager for an appointment. Mortgage origination companies have highly trained consultants who can assist you in obtaining a home loan at the best possible result.

You will be requested to supply certain information to complete your application: full names and identity number, current address, contact telephone numbers, monthly salary and proof of income and employment information.

How do I calculate the home loan for which I qualify?

Not many people pay cash for a home without taking a loan from a financial institution. Therefore, the amount of the bond for which you qualify is very important. Financial institutions will usually grant between 25% and 30% of the gross combined income as a monthly loan repayment.

Listed below is a factor table indicating what bond amount a client qualifies for based on the current prevailing interest rates over a 20 or 30 year term. BOND REPAYMENT FACTORS (i.e. for each R1 000.00 borrowed it will cost you X amount)

Interest Rate	20 Years	30 Years	Interest rate	20 Years	30 Years
14.000	12.44	11.85	21.75	18.37	18.15
14.25	12.62	12.05	22.00	18.57	18.36
14.50	12.80	12.25	22.25	18.77	18.57
14.75	12.98	12.44	22.50	18.97	18.77
15.00	13.17	12.64	22.75	19.17	18.98
15.25	13.35	12.84	23.00	19.37	19.19
15.50	13.54	13.05	23.25	19.57	19.39
15.75	13.73	13.25	23.50	19.77	19.60
16.00	13.91	13.45	23.75	19.97	19.81
16.25	14.10	13.65	24.00	20.17	20.02
16.50	14.29	13.85	24.25	20.38	20.22
16.75	14.48	14.05	24.50	20.58	20.43
17.00	14.67	14.26	24.75	20.78	20.64

What does my monthly mortgage payment include?

The bulk of your monthly mortgage payment goes toward paying off the capital amount and interest on your loan. In addition, most lenders require that you pay your home owner's or hazard insurance together with your monthly mortgage payment.

Can I pay off my loan early?

If you can afford it, and are interested in the considerable advantages of having more equity and / or owning your home free and clear at the earliest possible date, the answer is "yes". There are a number of accelerated repayment options open to you to achieve the significant savings on your home loan. Here are a few:

INCREASED MONTHLY REPAYMENTS
Significant savings in the interest charges on your home loan can be achieved with a relatively minor increase in your home repayment. For example, if you have a home loan of R100 000.00 at 21.5% interest, repayable over a term of 20 years, your monthly repayment will be R1 817.28

If you should decide to pay an additional 10% of your monthly installment, i.e. R181.73 per month, you will settle your home loan in just over 10.5 years, saving about R181 058.058 in interest.

EARLIER MONTHLY REPAYMENTS
A large numbers of home loan account holders pay their loan on the last day of the month. However, paying your home loan earlier every month will result in interest savings. In our R100 000.00 home example with the same interest rate and term, paying your monthly home loan installment five days earlier each month will reduce your home loan term by nearly 10 months and save you approximately R19 107.00. Note that this is achieved without even increasing your monthly repayment but merely paying earlier each month.

LUMP SUM DEPOSITS
Should you receive additional money in the form of a bonus or a lump sum payment, a consideration may be to deposit the full amount or a portion of it into your home loan account until you need the funds. For example, if you pay a sum or R10 000.00 off on your R100 000.00 home loan three months after commencing repayments, with the same interest rate and term as the previous examples, you will settle your home loan in just over 10.5 years and save almost R196 400 in interest charges.

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MULTIPLE REPAYMENTS DURING THE MONTH
Your home loan interest charges are calculated on the daily outstanding balance of your account. This means that you receive instant value for any deposits made to your home loan account because the daily interest calculation is based on a lower outstanding balance. For example, on a loan of R100 000.00 at 21.5%, over 20 years, the monthly installment is R1817.28. If this installment is split into two repayments of R908.64 each, and made on say the 15th and 30th of each month, instead of a single payment of R1817.28 on the 30th, an interest saving of almost R27 437.00 will be achieved and the loan will be repaid in less than 19 years.

If you are unsure about the rules governing prepayment, review your mortgage agreement or contact a home loan consultant at the bank.

What can I do if I have a fixed rate loan, and interest rates go down?

When interest rates drop significantly, the home owner should investigate the financial advantages of refinancing. Essentially, this means taking out a new loan to pay off you existing loan.

Refinancing may require that bond registration and other fees will have to be paid again. Most mortgage experts agree that if you can get a rate 2% less than your existing loan, and you plan to stay on in your home for at lest another 18 months, refinancing is a good investment.

What insurance will I need when buying a home?

Home owner's insurance is necessary to insure the structures of the main house and all outside building (e.g. garage), against accidental damage caused by fire or flood, resulting in partial or total destruction of such structures. The monthly insurance premium is normally included in the monthly home loan repayment.

Sectional Title Insurance is taken out by the Body Corporate against damage to the entire townhouse complex. The home loan applicant's monthly levy, which is paid to the Body Corporate's managing agents, will include his / her share of this insurance.

Certain financial institutions may require home owners to provide Life Assurance as part of the security for the home loan. However, even if it is not compulsory, we recommend that home owners consider taking specific cover for the home loan. In the unlikely event of their demise, their next of kin can have peace of mind that any outstanding amount on the bond will be settled.

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