EP 7 : What is a home loan (mortgage)

If you’re going to be responsible for paying a home loan for the next 20 to 30 years, you should know exactly what a home loan is. A home loan in South Africa has three basic parts: a down payment, monthly payments, and fees. 

Since home loans usually involve a long-term payment plan, it’s essential to understand how they work. We’ll cover all the basics, including what is a home loan in South Africa, the different types, bond lingo, the home buying process, and the best banks for home loans in South Africa.

If you’re contemplating homeownership and wondering how to get started, you’ve come to the right place!

What is a Home Loan in South Africa?

Home Loans in South Africa

A home loan are funds given to you by a mortgage finance company (usually a financial institution), these funds must be used to purchase a property and the owner of the property must repay the institution with interest.

How do home loans work in South Africa?

If your home loan is approved, the lender (usually a bank) will loan you money to buy a property.

You’ll then pay back what you owe monthly, generally over a period of 20 to 30 years, but you also have the option of choosing a shorter term. You’ll have to pay interest on the amount borrowed each month too, either at a fixed or variable rate of interest, depending on which type of deal you choose.

Are Bonds and Home Loans the same thing?

No, a bank gives you an advance (credit facility) to buy a home. For example, they lend you 1 million to buy a home and you have obligation to pay them back. What the bank does next is to register a mortgage bond at the deeds office.

A bond is the bank’s security over your property. The bond is a legal agreement whereby you, the owner of the property, hand over your rights over the property to the bank in order to secure a loan. This means if you default on payments, the bank can legally sell your home to make back their money.

The main difference between a bond and a home loan is that a home loan is a credit used to buy a house and a bond in South Africa is an amount borrowed against a property, either for the purposes of purchase or raising funds.

There are different types of bonds, depending on the asset and value. You can also have many bonds over the same property. For example, the bank lends you 1 million to buy a house, then you get another loan to renovate. Banks can increase or decrease your bond.

The most common bonds are:

  • Mortgage bond: finance borrowed against immovable property, using that property as security for the loan.
  • Notarial bond: A lesser-known form of security than Mortgage Bond. A bond on movable assets like furniture, jewelry, vehicles, or artwork.

Does the bank own my house until I finish paying it off?

No, the bank (lender) does not own your house until it’s paid off. Your name will be on your title deed – the legal document that legally confirms the ownership of a property, but the bank will keep your title deed in safe custody until such time as your home loan is fully paid.

The bank has a lien against your property, this simply means that If you can’t keep up your repayments the lender can repossess (take back) your home and sell it, so they get their money back. Think car loan/delinquent/repo. Same thing!

In summary, YOU OWN IT, but the bank CAN OR WILL take it IF you don’t make your payments.

Who qualifies for a Home Loan in South Africa?

There are various factors that are taken into consideration to determine whether you qualify or not for a home loan in South Africa. Each home loan provider has different criteria but the main requirements to qualify for a home are:

  • Age: If you’re close to retirement (over the age of 60), banks might not favor you as you need to be working and earning a salary to be able to pay off the loan for the next 20 years.
  • Credit history: how well or badly you pay your bills, how much debt you have, and how all of that stacks up against other borrowers. 
  • Deposit: The size of the deposit you can put down
  • Income: Your home loan repayments must not be more than 30% of your single or joint gross monthly income.

Home Loan Requirements in South Africa

For your first time home loan application, you will need the following:

  • Home loan application form
  • Personal assets and liabilities statement: A list of everything you own and its worth & all the people you owe money to.
  • Copy of your South African ID or Passport
  • Copy of Marriage Certificate (if applicable).
  • Copy of the signed offer to purchase agreement
  • Proof of income: 3 months salary slips or 6 months business bank statements if you’re self-employed
  • Latest 2 years’ annual financial statements, if you’re self-employed

Capitec Home Loans

Capitec saw an increasing need among its clients for more affordable home loans, and they decided to solve this problem by adding Home loans to the product offering in partnership with SA Home Loans. With an easy 4 step online application that takes less than 5 minutes to complete.

Capitec offers home loans up to R5 million over 30 years. Government employees, if they apply for a new home loan or switch their existing bonds, could qualify for a discounted interest rate. To qualify you must use the government employee housing scheme (GEHS) stop order.

Home loan applications can be tracked in real-time online, and clients may apply for a new home loan or switch their existing home loan, with the assurance that they will be given the expert home loan assistance they require from South Africa’s only specialized home loan provider.

This week, I chat with Nicolette Mashile – an author and advocate for Financial Literacy. We discuss what exactly are home loans and how they work.

Nicolette Mashile

Listen to the full episode on the UNPACK Podcast

  • Difference between a bond and a home loan?
  • What is a home loan and who is most likely going to qualify?
  • What do I need to apply for a home loan?
  • Will it be harder to get a home loan if I am self-employed vs. employed by a company.
  • Should I do my own application through a bank or should I get the bond originators to apply on my behalf? And why? Which is the safest?

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Reach out to Nicolette Mashile

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