Buying a home especially for the first-time requires that one does a lot of homework on basics such as applying for a home loan to understanding the cost of buying of a home.
Steven Barker, head of home loans at Standard Bank, explains that the maximum charge in terms of the NCA is R57 and the bank charges R51 for new home loans.
Speaking to home loan bankers it seems a lot of people buying homes lack the basic education of what costs are involved, what they have to pay and the actual process of buying a home.
Home loan administration fee
This is a monthly fee charged to cover the cost of maintaining your home loan account on the bank’s system, according to Standard Bank website information.
This information is contained in your home loan agreement and again, you can ask for clarity on terms you do not understand or are not familiar with.
We asked all the banks to tell us what their home loan administration fees are like - Steven Barker, head of home loans at Standard Bank, explains that the maximum charge in terms of the NCA is R57 and the bank charges R51 for new home loans.
Absa says the home loan administration is a monthly service fee charge with equates to MyHome client (customers with gross monthly income less than R16 500) of R34.20 (inclusive of VAT) and for all other home loan agreements, the fee is R57 (VAT included).
Nedbank explains that for loans registered on or after 1 June 2007, customers with Nedbank insurance are charged R52 and those without Nedbank insurance pay R57 per month.
FNB says they charge a monthly administration fee R57.
Home insurance
Home insurance provides cover for residential properties that are freehold title, while sectional title property must be insured via a body corporate’s insurance cover, says Barker.
Barker explains that the policy protects your home from the risk of structural damage, including fire damage, storm damage or a burst geyser.
A bank will require any home loan still under repayment to maintain structural insurance (homeowner’s cover) as agreed to in your home loan agreement, he says.
“Home insurance gives you peace of mind that your biggest asset is adequately insured, should an unforeseen event occur.”
Barker explains that the cost of homeowner’s insurance depends on what it would cost to replace the house which is often referred to as the sum insured.
Barker emphasises that since the market offers different policies, it is very important that one checks what the policy covers and what the specific exclusions might be.
How home insurance works
According to Praven Subbramoney, head of product and marketing collections and debt review centre at FNB Home Loans, Home Owners Cover (HOC) is a requirement for all full title properties.
Such insurance is conditional and subject to the bank’s approval.
“Cover needs to be maintained for the duration of the loan agreement,” he says.
HOC should cover most damages arising from fires, flooding, burst geysers, plumbing and natural disasters, it is therefore absolutely essential, as it covers these damages and losses to property, says Subbramoney.
Do I need to have insurance with the bank or I can obtain home insurance with another bank or financial service provider?
Subbramoney says the insurance service provider remains the customer’s choice provided that the product meets the bank's minimum cover and policy requirements.
Timothy Akinnusi, head of sales and customer management Nedbank Home Loans, says they have made the process seamless for buyers to take out home insurance along with their bonds - however, buyers have the option of taking out home insurance with an external insurer of their choice.
Buyers usually include the insurance as part of their home loan and pay one monthly repayment, including insurance cover, says Barker.
“They do have the choice of paying their insurance via a debit order off their transactional account.”
What is the upfront cost to someone buying the property for the first time?
Barker explains that the cost of homeowner’s insurance depends on what it would cost to replace the house, which is often referred to as the sum insured.
Rates will differ depending on structure (e.g. thatch roofs, finishes in the house, design, location of property, etc).
Cancellation of a bond is when a customer settles the loan, and requests that the bank cancels its mortgage over the property and returns the original title deeds to the customer.
These costs will apply regardless of the age of the house.
“It is important to remember that the market price of a house could be higher than its replacement cost because it is situated in a desirable area,” he says.
Similarly, the market price could be lower than the replacement cost because it is located in an area that is regarded by an agent as being less desirable.
In 5 mistakes to avoid in home insurance, Standard Bank advises that it is wise to consider the services of a property valuation expert before insuring a home.
Loan cancellation penalty fee
Should a customer wish to cancel their bond before the agreed contracted loan term, the customer is required to provide 90 days' notice in writing, says Barker.
“If the required notice has not been given, a customer will be charged 90 days' pro-rata interest based on the outstanding balance at the time of request for cancellation.”
According to Subbramoney, if a homeowner settles the home loan before the agreed term, the bank requires a 90 day notice period of their intention to cancel the bond.
Should you not serve the required 90 day notice, an Early Termination Fee is applicable, as follows:
1. If no 90 day notice is served, the full early termination fee will be charged
2. If less than 90 days' notice is served, early termination fee will be charged pro-rata for the remainder of the 90 days that have not been served.
3. If full 90 day notice is served, there will be no early termination fee charge
How does one cancel a bond?
There are two different types of customer known cancellations, says Barker.
If less than the 90 day notice is served, early termination fee will be charged pro-rata for the remainder of the 90 days that have not been served.
One is more a settlement than a cancellation, and the other would result in a full cancellation of the mortgage bond over the property in the Deeds Office.
“Few people know the difference, but it is important to understand the difference, as it can effectively save you cash in the long run.”
1. Settlement of a home loan
This is when the amount owed is reduced to zero.
The home loan remains open as the term has yet to end and a mortgage bond remains over the property in the respective Deeds Office register.
“Customers remain responsible for service fees on the loan, and insurance must remain in place, which can be debited to the home loan account.”
A monthly instalment will be due (it will be less due to the almost zero balance) and should you not pay the instalment in full, interest charges will apply, points out Barker.
2 .Cancellation of a bond
This is when a customer settles the loan, and requests that the bank cancels its mortgage over the property and returns the original title deeds to the customer.
An attorney needs to assist with this process, and there will be a fee payable by the customer to the attorney directly.
“In the long run this option can work out to be cheaper, and provides a customer with possession of their title deed.”
Other important matters
Credit life cover
Life in itself has many unexpected challenges and sometimes planning for your future may seem unnecessary, but if you don’t do it now, you could leave your family and loved ones in a difficult situation, says Barker.
Events such as an unfortunate death, dread diseases, permanent disability or even retrenchment would leave you or your family in a tough financial situation.
“Depending on the policies, instalments on your home loan can be covered for a certain period in the event of disability or retrenchment, or up to the outstanding balance on your loan in the event of death," says Barker.
In the face of such events, you should at least have the peace of mind that your family’s security of a home is taken care of by having a credit life cover.
Standard Bank offers a variety of credit life covers for your home loan, to suit your needs and pocket.
“Depending on the policies, instalments on your home loan can be covered for a certain period in the event of disability or retrenchment, or up to the outstanding balance on your loan in the event of death.”
Payment reminders and options
Barker emphasises that it is always in the customer’s interest to pay a home loan on time every month.
For your convenience, loading a debit order facility will help you meet that repayment.
Furthermore, he says should you be able to, paying a little extra into your home loan will help you save on your interest in the long run.
Read the article here.
Home owners insurance after your loan is settled
It is as important to keep insurance once your loan is settled, as you are protecting your property against unforeseen events, says Barker.
You do not have to have a home loan to have insurance, you just need to own a residential property to qualify for insurance cover.
Therefore, try to ensure insurance cover is kept in place, he says.
Additional insurance cover (not included in the bond or homeowner's cover)
There are a variety of insurance covers offered, but for homeowners, it is also important to take care of the assets in your home, such as televisions, cars, furniture and personal items.
He adds that banks also offer insurance cover for these items and many other items, so speak to your bank or your insurance provider, to make sure you are getting adequate cover at the best price possible. – Denise Mhlanga
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