First time home buyers missing out on best bond deals

Many first time homebuyers are missing out on the best bond deals - simply because they don't know of their existence or don't know where to seek advice on home loans.

MortgageSA Managing Director Saul Geffen says, "Most first time homeowners are unaware that they can obtain a 108% bond or that getting impartial advice from an originator is absolutely free. "They often end up not securing a more favourable rate and aren't aware that they need not feel intimidated by the process when there is reliable and friendly free help a telephone call away.

"Paying an unnecessarily high rate for a home loan can end up costing a buyer hundreds of thousands of Rands extra over the normal 20 year lifespan of a bond."

Geffen says 108% financing available to first time homebuyers covers the cost of the property as well the transfer duty and related start up costs, typically, conveyancing fees, bond registration costs and the cost of valuing the property.

"This means that the home buyer just needs to be able to afford the monthly home loan repayment. New buyers won't have to pay a deposit and the 100% portion of the home loan will be allocated to the cost of the property and the 8% will go to cover the transfer duty and start up costs.

"It's a fantastic opportunity to get involved in the property market as most young people find it difficult to save up for the deposit and transfer duty and other costs. Products that offer 108% financing have increased the number of homeowners because it assists people to get into the property market early without having to save for the initial deposit, which can take a fairly lengthy time to accumulate and thus increase the barriers to entry.

"Some banks will require you to pay back the transfer duty and start up costs over 5 years, whereas other banks capitalise the costs over 20 years."

Geffen says most first time buyers can borrow at better than prime especially if a reputable mortgage originator negotiates with the banks on the buyer's behalf.

"Recently we negotiated 1.7% below prime for a first time buyer who paid a 20% deposit; the discount to prime is normally around 0.9 to 1% for first time buyers. Of course, in each case, it depends on the individual circumstances of the applicant."

Geffen says that first time buyers should take advantage of banks willingness to lend them money as it will enable more young South Africans to get a footing on the property ladder, a fundamental concept in wealth creation.

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As interest rates rise, homeowners have an even bigger incentive to invest in their bonds, as they will be saving even more interest while benefiting from the secondary advantage of a shorter term of repayment.