Property finance can be rather complicated, especially if you don't understand the basics of home loans. Before signing that contract, you should do adequate research in order to find the best possible mortgage finance available in South Africa.



Buy versus Rent

Although renting a property often seems simpler than buying, the fact remains that at the end of the day you don't own the property. Renting has the benefit of mobility should your career or lifestyle demand it, but as a lessee, you have minimal rights and most of the time you are at the mercy of an unscrupulous landlord.

In South Africa the property market has seen a lot of changes over the past few years, and indeed the property finance market has undergone many ups and downs in this time too, but there has been consistent growth overall in property values.

Therefore investing in a property rather than just renting it will, in the long-run, make more financial sense.

How a home loan works

A very basic definition of a home loan is that it is a financial loan from an established institution in order for you to purchase a house.

When your home loan or bond has been approved, the balance owed for the purchased house is paid by the lending institution directly to the seller. This holds you liable to pay the home loan provider according to the contract's installment agreement. The installments may fluctuate according to variable interest rates. What you need to acquire is a loan package that has the best interest plan for you.

The bank will hold onto the deed to your property until the bond has been paid in full. During this period you cannot alienate the house, which means that you cannot change any of the conditions stipulated in your contract including renting out the property or undertaking major alterations without consulting the bank first.

Equity affects your alienable rights over the property. In other words, until the whole the mortgage is paid in full, you cannot be granted full equity, but can only alienate a portion of the property estimated to the value of the equity you have accumulated.

In South Africa, the major banks offer a variety of home loan options. You need to ascertain which one of these will best suit your financial needs by educating yourself about the pros and cons of each of the options available.

The four major types of home loans are

* Variable interest rate home loans; * Fixed interest rate home loans; * Capped interest rate home loans; and * Reducing interest rate home loans.

Mortgage Evolution

There are also different ways of going about applying for a bond. You can either decide to do all the work yourself, or you could use a mortgage broker or take advantage of the next step in mortgage evolution - an online mortgage originator.

If you decide to apply for your home loan independently, you'll have to approach each loan institution to which you'd like to apply for different quotations and information. This process can be quite tedious and you'd have to approach several banks so that you can suss out the most suitable option for you.

Another option is to utilise the expertise of a mortgage broker. They'll apply on your behalf to the banks, and will then be able to give you a list of options and offers. You can then choose the option you feel would be best suited to your needs.

The last option, and definitely the easiest way to apply for property finance is through an online mortgage originator. Mortgage originators are giving the power back to the average investor and it is definitely affecting the way home loans are processed in South Africa.

An online mortgage originator allows you to sit in the comfort of your own home while getting the mortgage process started. The mortgage originator will submit your application to all the home loan institutions in South Africa on your behalf. Apart from applying for home loans on your behalf, a mortgage originator would also be doing the negotiations with the different loan institutions on your behalf, securing you a better interest rate.