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Affordability and budgeting for owning a property

Before setting out to buy a home, one has to first think about your needs vs wants and you would have to be realistic since the financial implications and commitments could affect everyone you love.Monthly expenses need to be carefully budgeted before you even start looking. Owning a home not only means paying a monthly bond installment but has many new bills too. Make a list of everything you'll have to pay - bond installment, rates or levies, house insurance, mortgage protection insurance, electricity and water, repairs and maintenance; and then make sure your budget can afford everything you have listed.

Affordability is the big question every homeowner wants answered. Your installment should not be more than 25% - 30% of your regular family income, before tax and deductions. If you have your own business or earn regular overtime or sales commission, the various lenders will each have their own formula for calculating what they consider as regular income. For example in a family where both partners work, the calculation might be similar to this: Applicant A salary (before deductions)R15 700 per month + Annual bonus (divided by 12) R2 000 per month + Applicant B salary (before deductions) R12 200 per month + housing subsidy R1 500 per month = Total regular family incomeR31 400 per month. At a 30% installment to income, this family should be able to afford a repayment of R9 400 per month, which would mean their maximum loan would be R800 000 based on an interest rate of 13% p.a.

Lastly you have to keep in mind Interest, this is calculated on the amount owing on the loan on a daily basis and is added monthly to the outstanding balance. Your loan will be repaid over 20 years,that is, 240 monthly installments. “ You can make additional payments into your home loan, or pay more than your required monthly installments to reducing the time period of paying off your home loan” notes Craig Hutchison CEO of Engel & Völkers Southern Africa. The current prime interest rate is 13% - however you will receive a personalized rate upon applying for a bond. “Take note that this could be higher or lower than the base. Before looking at what you can afford, always ensure that you consider the possibility that you could get a rate of prime + 1 or 2% as this could affect your affordability. It is also always a good idea to ensure that you can afford a 1 or 2% higher repayment rate as should rates go up, you know that you are not left in financial difficulty” cautioned Craig.

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