The Bank may Offer a 100% Home Loan, but Should you Take it?
Property ownership is a numbers game
You’ve heard the buzz of record-low interest rate, banks offering 100% home loans, but is it really cheaper to buy a home than it is to rent, and should you take on a 100% home loan or save for a deposit?
A shift from renting to buying is set to continue in 2021
An all-time low prime interest rate of 7% is driving tenants to become property owners. “This is evident in the average age of ooba home loan applicants for Q3 of 2020. On average buyers are one-year younger from 38 to 37 years of age, while the age of first-time buyers has dropped from 35 to 34 years compared to Q3 2019”, says Rhys Dyer, CEO of ooba Home Loans.
“Monthly bond repayments are at an unprecedented low and we anticipate that the current interest rate will remain in place for majority of 2021. In saying this, we still urge potential buyers to factor in rising interest rates over the years to make sure that they are covered for every eventuality.”
Dyer shares a guide to help prospective buyers assess their monthly bond repayments against what they are currently paying in rent.
Should you take out a 100% home loan or save for a deposit?
While banks are increasingly approving 100% home loans (AKA zero deposit bonds), Dyer urges prospective buyers to take the time to calculate how much their initial deposit could help to reduce their monthly repayments, thereby saving them money in the long-term.
“Taking out a 100% home loan will not only result in higher monthly repayments, but it could also mean higher interest rates,” ooba offers a free online Bond Repayment Calculator so that prospective buyers can see how much a deposit will save them in the long-term.
“If you look at a 0% versus a 10% deposit on a R1 million house, the repayment will be R7,753 a month versus R6,978 with a 10% deposit. This may not sound like a big difference now, but over 20 years at an interest rate of 7%, those without a deposit will have paid R186 071 more than those who put down an initial 10% deposit”, Dyer explains.
“Finally, putting down a deposit shows both the property seller and bond lender that you’re committed to the purchase, improving your chances of having your offer accepted.”
Learn everything you need to know about securing a bond:
Dyer concludes: “While we are seeing an increase in 100% home loans, we still strongly encourage prospective buyers to save up for and put down a deposit. Your future self will thank you, and by saving up and performing these calculations you’ve proven to yourself and to your lender that you are truly able to afford to purchase a home.”
With the interest rate being as low as it has been, entry for many first-time buyers, may have a knock-on socio-economic effect in reducing housing inequality and access to homes in sought-after areas.
“Prospective homebuyers can also breathe a sigh of relief knowing that there are no transfer duties on properties purchased below R1 million”, Rhys Dyer, CEO of ooba Home Loans.