Should You Refinance SA Home Loan?

January 12, 2010

There are many great reasons to refinance your SA home loan and it may be a wise financial decision.

Some of the more popular reasons to refinance include lowering your interest rate, lowering monthly payments, debt consolidation and decreasing the home loan term to build equity quicker.

But, before you decide to refinance you need to the sums to determine if the cost of refinancing would be worth. Keep in mind that if your goal is to save money, you to calculate your break even point.

Your break even point is the point where your savings covers the cost of refinancing SA home loans. As a rule of thumb, the longer you intend on staying in your home the more feasible it will be to consider refinancing. It is a fairly simple calculation to determine your break even point which will help you to figure out when you will start saving money.

Add up the costs (prepayment penalties, registration costs etc.) of refinancing your home loan and divide the total costs by the amount you save each month. This will show you the number of months it will take before you start seeing real savings.

For example, if you refinance SA home loans your closing costs could end up to be R14,500.

Also your mortgage payment have gone down from R4,900 to R4,000 which translates into a R900 monthly saving. Divide the R14,500 by R900 which means that it will take you 16 months to break even. This is a fairly simple explanation, but it should help you to calculate if you should go through the exercise of refinancing your SA home loans or not.

In the above example if you plan on staying in your home for longer than 16 months it will be a wise decision to refinance

The Home Loan Pre-approval Process

January 8, 2010

 To make sure of how much you can qualify for when applying for a home loan is to go through the home loan prequalification process. This is the first in formally applying for a home loan.

A prequalification is not a binding document and in many cases it is just a verbal estimate. It is an estimate of how much you can borrow based on your income.

A prequalification is not a loan guarantee and it is only as accurate as the information you have provided. Don’t try to overstate your income in the hope of qualifying for a bigger loan.

The lender won’t pull you credit record or commit themselves to what you can basically call a home loan quote. This is just a ball park figure to give you an idea of how much you can borrow.

If you’re serious on making an offer on a home you must complete a full application and the bank or your mortgage broker will need documents like payslips and bank statements during which time they will also confirm your employment and pull your credit record.

If everything is in order the bank will issue and AIP (approval in principle) which means that they are committed to give you a home loan as long as your credit or employment do not change for the worse.

Next, the lender will do a valuation on the home you would like to purchase and if they can find sufficient value in the property they will issue a final grant which means that your home loan is approved. The lender will instruct the attorneys to start with transferring and registering the property in your name.

 This process will take about two weeks and once you and the seller have signed the transfer papers it will take about another two weeks before the property is registered in your name.

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