The easy guide to using a home loan calculator

Article summary:

• Home loan calculators allow you to budget in advance when planning a home purchase. Their ultimate purpose is to help you determine what you can afford.
• Our range of home loan calculators are user-friendly and provides invaluable information, such as how much you’ll pay on transfer costs and transfer duty.
• Our calculators provide an estimate, not a 100% accurate amount. We recommend you get prequalified to find out with greater accuracy what you can afford on a home loan.

Planning your budget for a home purchase, or knowing whether you can afford a home purchase in the first place, can be a conundrum, especially for first-time homebuyers who are unsure about the process.

But we’ve made this process easier with a range of home loan calculators, that serve as essential tools for planning your budget.

Here we provide a guide to our range of home loan calculators and demonstrate how user-friendly they are. We show why ooba Home Loans is your one-stop location for all the information you need on home loans!

General information required for home loan calculators

Some variables that most home loan calculators will require you to provide:

• Years to repay: This refers to the length of your bond. In most cases, this will be a 20 or 30-year bond. A 30-year bond means lower monthly repayments with a higher interest rate, while a 20-year bond means higher monthly repayments with a lower interest rate.
• Interest rate: This refers to the prime lending rate, which is adjusted by the South African Reserve Bank every few months. To make it easier for you, the calculators automatically have the current prime lending rate registered, so you don’t have to research it.
  The calculators assume your bond is granted on the prime interest rate, but of course, in most cases your bond interest rate will be higher than the prime interest rate, so you’ll have to factor in the additional cost.

Note: Naturally securing lower interest rates will save you money in the long term. Just a 0.25% subtraction from the interest rate can save you as much as R40,000 in the long term.

Your best chance of securing lower interest rates is to apply to multiple banks. ooba Home Loans can assist in this regard by submitting your application to multiple banks, some of which will be willing to offer lower interest rates than others.

So apply with ooba Home Loans to improve your chances of securing lower interest rates.

How accurate are the calculators?

The home loan calculators are not 100% accurate, since they do not include an assessment of your credit record.

If you want a more solid estimation of what you can afford, you can get prequalified with ooba Home Loans (more on that below). This will factor in your credit record, which is the most important factor the bank takes into account when determining your home loan affordability.

Our home loan calculators

1. Bond Affordability Calculator.
2. Bond Repayment Calculator.
3. Transfer Cost Calculator.
4. Extra Payments Calculator.
5. Deposit Savings Calculator.
6. Amortisation Calculator.

1. Bond Affordability Calculator

Purpose: To calculate the home loan you will qualify for. A rule of thumb is that home loan repayments should not exceed 30% of your monthly gross income.

Information required:

• Gross income: This is your standard income before tax deductions and expenses.
• Net income: Your total income after tax and expenses.
• Total monthly expenses: Groceries, insurance premiums, and other such monthly expenses that you need to factor into your budget. You don’t require 100% accuracy, just a general estimate that the calculator can use.
• Net surplus income: This refers to income that is generated after all deductions have been factored in.
• Years to repay.
• Interest rate.

The aim of this information is to enable the calculator to determine 30% of your gross income, thereby the amount you will be able to afford on home loan repayments.

2. Bond Repayment Calculator

Purpose: To calculate your monthly repayment (the amount you will have to pay monthly on the home loan) and your total repayment (the total cost of the home loan).

This is straightforward but essential information that will enable you to budget accordingly. Remember that your repayments should exceed 30% of your gross income.

Information required:

• Purchase price of the property (ie. the amount covered by the bond).
• Years to repay.
• Interest rate.
• Deposit. Home Loans usually require an upfront deposit of 10%, but a higher deposit will lead to lower repayments and enable you to pay off the bond in a shorter amount of time.

Note: There is the option of acquiring a 100% home loan, which removes the need for a deposit. Since the deposit is the main barrier to homeownership for many first-time homebuyers, a 100% home loan makes it more achievable but will require higher monthly repayments and interest rates.

To calculate what a 100% home loan, will cost you, simply enter the deposit as 0.

3. Transfer Cost Calculator

Purpose: To determine what you will pay on the transfer of property process and transfer duty.

Transfer of property is the process by which the property is transferred from the original homeowner to you.

Transfer duty is a tax on the transfer process that you pay to SARS (properties worth less than R1 100 000 are exempt from transfer duty).

It’s essential to know this as transfer of property and transfer duty can be seen as “hidden costs”. In other words, you are not provided with this information upfront and will need to factor such costs into your budget.

Information required:

• Purchase price. The higher the purchase price, the higher the transfer costs and transfer duty.
• Loan amount: The amount being provided by the bank.
• Type of property ownership. This refers to the difference between freehold and sectional title property. Freehold is a property controlled solely by the owner, while sectional title is part of a shared ownership, for example, a property that forms part of an estate.
• Seller registered for VAT.
• Status of purchaser. In your case, you’ll need to enter “Natural Person”.

4. Extra Payments Calculator

Purpose: To determine how an extra payment into your home loan will affect your home loan loan amount, monthly repayment amount, and bond term.

An extra payment refers to an amount paid over and above the monthly repayment amount.

You should take the chance to make an extra payment whenever you get the opportunity. For example, a 13th cheque (Christmas bonus) can be used as an extra payment.

It may be tempting to use bonus funds you acquire to buy a new TV or something along those lines, but paying towards a bond will make it easier to acquire the most valuable asset you’ll ever own.

Information required:

• Current bond debt.
• Remaining bond term.
• Interest rate.
• Monthly repayment: The amount you usually pay per month on the bond.
• Once-off overpayment: Just a single overpayment can save you significant amounts in the long term. For example, an extra R250 payment in your R1 000 000 bond every month will shorten your bond repayment period by 1.5 years (assuming a rate of 10%).

5. Deposit Savings Calculator

Purpose: To help you muster the funds for a deposit, by calculating how much you’ll need to save per month.

The higher your deposit, the more significant your long-term savings. A higher deposit also increases your chances of home loan approval.

This calculator will provide an estimate of how much you need to save, allowing you to set a realistic goal.

Information required:

• Purchase price.
• Deposit required (percentage of property value).
• Extra savings available: Referring to any savings you may already have accrued from extra income, inheritance etc.
• By when you need the deposit: This will enable the calculator to determine how much time you have to reach your objective.
• Savings interest rate: This refers to the interest rate you earn on your savings, which will count as additional savings.

6. Amortisation Calculator

Purpose: To provide the cost that you will have to write off over the period of the home loan, including a breakdown of the total interest you will pay.

Information required:

• Total amount of loan.
• Number of months of loan. The calculator needs this to determine how much your loan reduces by, every month, over the full period of the loan.
• Fixed term (in months).
• Fixed interest rate. This only applies if you have a fixed interest rate, which is an interest rate that doesn’t change according to the movements of the market. You choose between a fixed interest rate and a variable interest rate (interest rates that change according to the prime lending rate as determined by the SARB) when you apply for the home loan.
  If you don’t have a fixed interest rate, the contribution to your interest rate will increase or decrease along with the prime lending rate.

Prequalification: The ultimate calculator

Not listed among the above calculators is our prequalification process. This determines with greater accuracy what you can afford on a home loan by assessing your credit record. This is the most important information you can obtain before applying for a home loan.

You can get prequalified by contacting an expert at ooba Home Loans or by using our free, online prequalification tool, the Bond Indicator.