It is usually necessary for Joe Soap to obtain a loan from a financial institution in order to obtain a home loan. A small house on a tiny plot can easily cost more than a buyer has. So a loan is essential.
Monthly instalments on a loan may carry on for a very long time, eventually costing more than the house itself. Despite this, property remains an excellent investment. A loan may be expensive but the rise in the value of the property can far outweigh the costs.
Many experienced property people like to repeat the word ‘locality’ three times to emphasize the importance of buying in the right area. Especially lucrative is an opportunity to buy a poor house in a good area.
Buying an indifferent house in a good locality can make a person wealthy. As the area goes upmarket all the homes will appreciate in value making the capital value far greater than the amount paid for it. Private ownership of property is a great wealth maker, especially for those people who buy in the right locality. The ability to get a mortgage can make wealth making opportunities available.
Although great opportunities exist in property ownership, traps lie in wake for the unwary. They may mostly be described under the heading of ‘over exposure’. A person may have borrowed heavily to finance one or more homes. When the economy of a country hits a wall, property values drop, as do job opportunities. A person may be unable to pay monthly instalments, and when that happens debts escalates in a terrifying way. It may all end up with property being repossessed and finance costs far exceeding the value of the asset.
In view of the great opportunities in property investments, and of the concomitant risks it is important for the home buyer to find a satisfactory lender. The main banks are also the main lenders. They have obligations to their shareholders and so should avoid undue risks by lending to people who may not be able to repay.
They will only lend if a borrower has sufficient security. If they make a mistake and lend to someone who cannot meet repayments they will take back a home without compunction. Borrowers must beware. Banks are not charity workers.
There are lenders besides the conventional banks which some people regard as the only lenders. Some private institutions which specialize in home loans may be able to offer more flexible arrangements and better rates of interest. Borrower can investigate them, and even consider switching the mortgage from a conventional lender to a smaller specialist lender.
Looking for comprehensive information on how and where to get the best home loan in South Africa? Get the low down now in our complete guide to estate agent services and mortgage applications.