Things to Consider Before Accepting a 105% Home Loan

Many South Africans have to think twice before applying for a home loan because certain factors prevent them from buying a house.

Firstly, potential buyers do not have enough money to pay the fees associated with buying a house. Secondly, South Africans are not great at saving.

With the cost of living being at an all-time high, it is not surprising. To help fix this problem, banks like ABSA launched options that allow buyers to apply for a 105% home loan.

It might sound beneficial but there are a few things to consider before accepting it:

How does it work?

Buyers can apply for a 105% home loan, which will cover the cost of the house and the extra 5% can cover the extra fees like bond registration costs. The total amount is then worked into monthly bond instalments like a normal bond.

What are the benefits of a 105% home loan?

The goal of this option is to make it easier for younger buyers to buy their dream home and to enter the real estate market. With the current interest rate at 7%, young people are scrambling to buy a home. The 105% home loan option makes it possible for them to reap the rewards of the low-interest rate.

What are the risks of the 105% home loan?

Even though a 105% home loan seems like the obvious route for many people, there are a lot of things that potential buyers need to consider before accepting. Buyers are not only paying back 100% of the bond but an extra 5%. It might not sound like it is that much, but it will make a difference once they become homeowners.

A final word

A home loan is the same as any other debt that you incur. The sooner you pay off the interest, the better. An added 5% to your home loan also means added interest, not just added capital. You need to ask yourself whether you can afford it on top of the 100% home loan you already have to settle.

Read the full article here.