Article by Emile Grobbelaar
Continuing from our previous article to clarify and explain the costs involved with a property purchase, the following are costs that must get considered when you are in the market or buying a property:
INITIAL CHARGES:
HOME LOAN:
Home Loan Initiation Fee
The bank charges a Home Loan Initiation Fee to process the home loan application. This amount is, sometimes, still payable even if the bank rejects the home loan.
On occasion, the banks could exclude the amount from transactions where the Bond Registration Costs are included in the purchase price of the property and will have to be paid by the buyer
It will be in your best interest to budget for this amount.
Amount: Some banks work on a base fee plus a percentage of the loan amount, while others charge a flat rate.
When to pay: Once off, on registration of your bond.
Who to pay: The amount will most likely get debited to your home loan account (added to your outstanding balance).
Who the money is for: The bank.
MUNICIPAL PROVISION for RATES and TAXES:
This charge covers all rates and taxes that need to be paid in advance by the buyer, usually for three months
Amount: The amount payable for rates and taxes vary from one local authority to another, following the valuation of the property. Make provision for about three months' value of the Rates Amount per month.
When to pay: Once off, before the property transfer.
Who to pay: The Transferring Attorneys OR Directly to the Local Authority.
Who the money is for: The Local Authority.
WATER & ELECTRICITY DEPOSIT:
These days, most properties, Freehold and Sectional Title, have prepaid services installed. Sometimes it is managed by the local municipality, and sometimes by an independent service provider. Should the property not have prepaid electricity installed, the following is required:
Amount: Contact your local municipality to find out what the amount is.
When to pay: Once off.
Who to pay: The Local Authority.
Who the money is for: The Local Authority.
ONGOING HOME LOAN CHARGES:
ADMINISTRATION FEE:
The bank charges the Administration Fee to administer the home loan account.
Amount: You can expect to pay around R 69.00 Monthly Service Fees, depending on whether you have taken out the bank's in-house homeowner's insurance. The Service Fee will be a lesser amount if you make use of the bank's insurance.
When to pay: Monthly.
Who to pay: The amount will most likely get debited to your home loan account.
Who the money is for: The bank.
HOMEOWNER'S INSURANCE:
This insurance is required chiefly on freehold properties, as the structure of a Sectional Title property is insured by the body corporate through their group insurance.
The bank will insist that you take out a homeowner's Insurance Policy to cover the property and the permanent structures against natural disasters like fire or storm damage.
Amount: The amount will vary depending on the value of your property.
When to pay: Monthly.
Who to pay: The amount will most likely be debited to your home loan account.
Who the money is for: The Insurance Company.
HOME LOAN PROTECTION ASSURANCE:
If you don't already have a Life Assurance Policy to cede as security, you need to take out Home Loan Protection Assurance, i.e.:
Death Only
Disability Only
Retrenchment Only
Death & Disability
Death & Retrenchment
Disability & Retrenchment
Death, Disability & Retrenchment
Amount: The amount depends on the outstanding balance of your home loan. Get quotes from several companies, and do not just take the bank's product because it is convenient.
When to pay: Monthly.
Who to pay: The amount will most likely be debited to your home loan account if you have taken this product through the bank.
Who the money is for: The Assurance Company.
Depending on the home loan package, some of the abovementioned costs can be absorbed into the mortgage loan. Speak to your banker or financial adviser for more information and to double-check these costs.
OPTIONAL COST:
THE DEPOSIT:
A Deposit is an initial payment you make to secure the purchase of your property.
NB - Your deposit is not there to pay the extra costs involved in purchasing property, i.e. Bond Fees, Transfer Duty, Attorney's Costs, and so on. It is a cost on its own.
Amount: The amount of your Deposit depends partially on how much money you have available (savings) to put down. However, in recent years, banks have changed their lending criteria, and you may not be able to obtain bank finance without a Deposit. These days, most banks only approve 80% bonds for trusts, so you will, most likely, need to prepare for a 20% deposit if you want to proceed with the transaction if you have applied for a 90% or 100% bond.
Remember: The bigger the Deposit, the smaller the home loan repayment.
When to pay: Once off, upfront.
Who to pay: The Transferring Attorneys.
Who the money is for: The Transferring Attorneys hold the Deposit in an interest-bearing Trust account until your bond (home loan) is registered and the property gets transferred into your name.
You will pay over the money to the bank (or directly to the Seller if you are not taking out a home loan to purchase the property.
The interest accrued on this amount in the Trust account will be paid back to you.
We hope that the above and the previous article helped you better understand the charges and statement of account received from conveyancers and to make sure that any service provider does not drive up the costs you are paying.
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