Saving for the deposit on a home is like training for the
Comrades Marathon – the earlier you start and the more regularly you run, the
better, so that your body has time to adjust to the strain and build up the
necessary muscle and stamina.
So says Rudi Botha, CEO of BetterBond, SA’s biggest bond
originator, who notes: “Everyone knows that the best time to start training for
next year’s Comrades is just after this year’s race, and getting ready to buy a
home is the same – it takes time as well as discipline.”
At the moment, he says, the main obstacle to ownership for
many young people is the lack of a deposit. “It is true that lifestyle changes
have a part to play in young people buying their first homes much later than
they used to. Millennials like to travel more than their parents did, for
example, and tend to stay single longer. Many are also only starting to work at
a later stage, but the biggest reason for the delay is that they don’t start
saving for a deposit soon enough.
“People in their 20s now often have study loans to pay off,
car payments to make and credit card debts on top of the rent and other monthly
living costs, so there is usually not much salary left to save every month, but
if they want to be homeowners – or even just to buy an investment property – we
believe they should start saving that little bit anyway and putting the power
of compound interest to work.”
The way this works, Botha explains, is that those who start
saving now could accumulate a R50 000 deposit in five years by paying R720 a
month into a normal bank savings account that pays around 6% interest a year.
“But if you wait to start saving for a deposit until two
years before you want to buy, say, you will need to save almost R2000 a month
in that same bank account to reach your R50 000 goal. That will obviously put
much more strain on your household budget and might well cause you to postpone
or even abandon your home purchase plan.”
On the other hand, he says, you might decide to go ahead
without a deposit, and apply for a “100%” home loan, not knowing how much extra
this is going to cost you in the long-run.
“It is of course quite possible to get 100% loans,
especially if you are a first-time buyer purchasing an affordable home.
However, your credit record has to be excellent and you will have to pay a
premium interest rate – usually about two percentage points more than the
prevailing prime rate – so the total cost of your home over the 20-year life of
the bond will be much higher.”
For example, Botha says, the total cost of a R500 000 home
bought with a 100% loan taken over 20 years at an interest rate of 12% (the
current prime rate plus two percentage points) would be R1,322m, while the
total cost of the same home bought with a R50 000 deposit and a 90% home loan
at an interest rate of 10% would be R1,043m.
“In other words, you would save around R280 000 just because
you took the time to save up that deposit – and your monthly home loan
instalment would be more than R1000 lower.That’s a winning strategy worthy of a
gold medal.”
Issued by etc
Contact her today for no cost stress-free home-buying.
Anne-Marie Bamber
Home Loans consultant
Tel: +27 (0)21 851 3568 | Fax: +27 (0)21 441 1494 | Cell: +27 (0)82 071 1665
E-mail: anne-marie.bamber@betterlife.co.za
