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4 Reasons why having a Deposit is Beneficial when buying a Home

Posted by Laila Conlon on 8 Jul, 2018
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  1. Costs:  When you buy a home (with a bond and not for cash), both transfer and bond costs are calculated on the purchase price and bond amount (according to a tariff).  While transfer costs won’t change, because the purchase price is fixed, the bond costs will differ depending on whether you have a deposit or not.  More specifically, if you have a deposit, your bond costs will be lower, as the bond that is registered against the title deed, will be reduced by your deposit.  As an example, if a property is purchased for R1 000 000.00, with a 10% deposit (R100 000.00), your transfer registration fee (apart from other costs such as Transfer Duty and other fees and disbursements) will be R18 030.00 while your bond registration fee will be R16 560.00 (versus R18 030.00 if you obtained a bond for the full purchase price).
  2. Bond Installment:  By having a deposit, means that your bond installment will be lower than it would have been if you had a bond for the full purchase price, which means that all your hard work in saving means that your dream home is more affordable on a monthly basis.  As an example, if you bought a property for R1 000 000 and you chose to get a bond for the full amount, your monthly installment (depending on your interest rate), would be approximately R10 350.00.  However if you had a deposit of R100 000 (10%), your monthly installment would be around R9 300.00.  In today’s times, a saving of R1 000.00 per month is amazing (especially if you can put it back into your bond to reduce your loan term.) *** Watch out for our next blog on how to reduce your bond term and pay off your home quicker!
  3. Interest Saved:  Although your loan term will be the same (usually 20 years), by putting down a deposit of 10% on the purchase of a home of R1 000 000.00, will mean that you save the interest that would have been charged on the deposit amount – it really means that you will save about R100 000.00 on interest. In other words, you will put a R100 000.00 deposit down, and at the end of 20 years of paying your bond, you would have paid R200 000.00 of additional interest – meaning a saving of R100 000.00.
  4. Success Rate/Score/Affordability: By showing a bank that you have saved money to put a deposit down, shows your commitment to a property, and that you are “invested” in your home – this means they will take you more seriously when considering the home loan, as it means that there is already equity in the home if they grant the bond (which means less risk for them).  This means that you are likely to have a bigger success rate with getting the bond granted.  A deposit also “helps” or gives an idea of your credit score and affordability (which banks look closely at when lending).  If you are able to save or have available, a substantial deposit, you’re are not likely to have a lot of debt, or any defaults (bad debts) against your name.  Furthermore, because the bond installment would be lower (because of the deposit), it means that it is more affordable to maintain each month – banks are BIG on affordability, because if they fail to do their sums correctly, it could amount to reckless lending in terms of the National Credit Act, and they risk huge penalties.

Sometimes there are other barriers to you getting your dream home (some legal)… other than the above items.  Contact us to see how we can help you make your dream a reality!  We have a team of attorneys that can help you overcome difficulties when it comes to obtaining a bond or getting rid of barriers to your future happiness!

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