Debt consolidation loans – Advantages and Benefits

August 29, 2007

South African consumers are swimming in a sea of debt. Currently consumer credit to households is estimated at R760bn with 14 million active credit consumers and 50 million open accounts. The average % of debt to income is 73%. There are 80,000 judgments for debt per month.

Making the minimum payment on all your credit cards, mortgage and personal loans will not cut it. The compounding of interest (interest on interest) is working against you and some day, you will find yourself in a big financial hole if you do not do something about it

Therefore consumers are turning to debt consolidation loans, attracted by the benefits and advantages these loans have to offer. Lets discuss some of the possible advantages of a debt consolidation

Single Payment
Most consumers prefers to make a single payment instead of having to make payments to several creditors.
This way, you can do away with the damaging effects of dealing with unmanageable debts. A debt consolidation loan will help you bring your entire debts under one umbrella. Keeping track of your money will not be difficult.

Interest Rate Reduction
A major benefit of debt consolidation loans are due to the fact that the interest rates are half to one-third the interest charged for revolving credit card accounts. Debt consolidation loans are secured loans – meaning your home is used as collateral while borrowing money. This reduction in interest rate turns out to be a blessing for consumers.

Monthly Admin Fees Savings
By consolidating your debt, you are not only saving on the overall interest rate, but you are also saving on all your monthly charges for all your separate account. This can be substantial if you take into account all the monthly administration charges for your bond, overdraft, loan, car repayments etc.

Low Monthly Payments
You eliminate all your high interest debt when you consolidate your debt. You will now be making a low monthly payment on your debt consolidation loan and this is the only loan you need to worry and pay off.

However, before jumping into debt consolidation loans, you should do some calculations first on the interest you are paying on your current credit card and personal loan accounts and then check how much you will be saving by getting a debt consolidation loan. Next you should plan to use these savings (interest) to pay off your debt consolidation loan as soon as possible, to maximize savings.

Tax Free Investment
The best investment you can make is to repay high interest debt. The return on this investment will be in excess of 20% on credit card debt, for example, and that return is tax free. Fund managers who have achieved the same rate of return for their clients the past year are very few and far between.

For more information on debt consolidation, bonds and other related articles go to www.globalproperty.co.za


The Bond Financing Process

August 26, 2007

Day 1: Submit an application through your bond broker

  • Bond Broker pre-qualifies client for loan.
  • Request and motivate for rate discounts for clients from various financial institutions.
  • Contacts client with results and client makes a preliminary decision on lender of choice.
  • Bond Broker submit fully completed application with supporting documents to financial institution.
  • Bond Broker awaits AIP (approval in principle) or decline notification from financial institution.
  • Approval in Principle – Client is approved subject property valuation.
  • Decline – Clients application declined due to various factors.

Day 2-5: AIP (approval in principle) issued

  • Credit department verifies information and does credit checks.
  • Bond Broker receives AIP or decline notification.
  • AIP (approval in principle) – client is approved subject to a valuation to be done on property. This is not a final approval.
  • Decline – Client’s application declined due to a variety of reasons. Bond Broker will reassess application for further assistance.
  • Bond Broker informs client of decision.

Day 7-8: Formal Quotation

  • A property assessment (valuation) is completed by the bank – the valuation takes place either physically or through a so-called desktop valuation.
  • The bank will send a formal QUOTATION (final approval) through to the Bond Broker, the estate agent and the client.
  • The Bond Broker informs client and explains all the details of the quotation. The client then accepts or rejects the quotation.
  • The bank will forward the loan agreement to the attorneys and instruct the Registering attorney to attend to the registration of the bond.

Day 10-12: At the attorneys

  • The home loan bond documents are prepared.
  • Client contacted by attorneys to come and sign documents.
  • Required to pay transfer duty and other costs.
  • Attorney lodges transaction with Deeds Office.
  • Registration attorney confirms registration to buyer and to the bank.
  • Seller’s bond cancelled (if applicable) and settled.

Day 15-18 : At the bank

  • The attorney will advise bank of registration.
  • The bank will disburse the money.
  • The transferring attorney will advise client that the property has been registered in their name.
  • Bank will confirm monthly installment due in writing.
  • First monthly installment due within 30 days of registration date.
  • The Title Deed & home loan document sent from the attorney to the bank for safekeeping.
  • With the new National Credit Act this process can take up to 3 months and longer. See factors that delay registration.

The legal stuff

Phase 1 : The Transfer Attorney

  • The seller informs the Transferring Attorney to attend to the transfer of ownership of the property into the buyer’s name.
  • The transferring attorney will request the title deed and cancellation figures from the seller’s existing bank (if applicable).
  • A Rates Clearance Certificate will be requested from the local authority. No transfer is possible without such a certificate.=

Phase 2 : The Bond Attorney

  • When the bank approves the buyer’s loan and instruction will be issued to the Bond Attorney to attend to the registration of the bond.
  • The Bond attorney informs the Transfer Attorney of the amount available for guarantees and requests the draft Deed of Transfer.
  • This Deed of Transfer is necessary to get details about the purchase price, title conditions etc.

Phase 3 : The Cancellation Attorney

  • The Cancellation Attorney is instructed to cancel the seller’s home loan upon receipt of a guarantee for the amount owing.

Phase 4 : The Transfer Attorney

  • The Transfer Attorney receives the Title Deed and cancellation figures and sends a copy of the deed of transfer and the guarantee requirements to the Bond Attorney.
  • The Transfer Attorney will contact the buyer and seller to sign the transfer documents.
  • The buyer pays the transfer costs and the Transfer Attorney then pays the rates and taxes and the transfer duty.

Phase 5 : The Bond Attorney

  • The Bond Attorney prepares the home loan documents. The buyer signs the relevant documentation and pays the bond registration costs.
  • The Bond Attorney then issues the necessary guarantees and forwards them to the Transfer Attorney who prepares the mortgage bond documents for lodgment with the Deeds Office.

Phase 6 : The Transfer Attorney

  • Once the Transfer Attorney has received the guarantees, he will forward it to the Cancellation Attorney, who (cancellation attorney) in turn obtains consent from the seller’s bank for home loan cancellation.
  • Once all the documentation has been signed and the all the costs involved settled then the process can be finalized.
  • The Transfer Attorney contacts the Bond and Cancellation Attorney to lodge all documents simultaneously with the Deeds Office.
  • The documents includes the: home loan cancellation, transfer and new home loan documents.
  • The transfer Attorney attends to the registration of transfer of the property while the Cancellation Attorney attends to the cancellation of the existing bond of the seller and the Bond Attorney on the other hand sees to the registration of the new bond.

Phase 7 : The Deeds Office

  • The set of three registrations which has been submitted simultaneously and after being examined by the examiners in the Deeds Office, placed on preparation where the attorneys attend to any notes made by the examiners in respect of the documents.
  • This takes 10-14 working days.
  • On the day of registration the bank pays out the loan according to the guarantees issued.
  • Agent’s commission is paid to the estate agent.
  • The Transfer Attorney then forwards the Title Deed to the Bond Attorney/Bond holder who retains the same together with the registered bond document as secured.

LEGAL COSTS

You will be liable for the following costs:

  • A bank valuation and initiation fee.
  • Transfer costs (transfer duty, conveyance fees and stamp duty etc. to the transferring attorney for transferring the property into your name.
  • Bond registration fees which you must pay to the attorney registering your bond

Save on Legal Fees

For more information on debt consolidation, bonds and other related articles go to www.globalproperty.co.za