Different stages of life require different approaches when it comes to obtaining a home loan. For example, first-time buyers often have good incomes but a shortage of cash and retirees often have enough cash or equity for a large deposit but reduced incomes.
“However, no matter which generation you belong to, working with an experienced and reputable mortgage originator is your best strategy for getting the loan that fits your personal circumstances best,” says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator.
“We understand, for example, that millennial homebuyers probably haven’t been in the workforce that long, so cash is often the primary consideration for them.
“Of course a 20% deposit would mean that you’d have lower monthly bond repayments, but even if you haven’t managed to save that much yet, we can still help you to reap the benefits of home ownership.
You will need:
– Stable employment
– A clean credit record
– You will have to be able to afford the monthly repayments on your loan comfortably.
Once you have everything ready, you should be able to get a loan with a deposit between 7% and 8%, which is the average paid by our first-time buyers over the past 12 months.”
At the moment, he notes, the BetterLife Home Loans statistics show that the average purchase price for first time buyers is around R680 000, so an 8% deposit would be R54 400.
“This would give you a monthly repayment of about R6250 on a 20-year bond at the current prime interest rate of 10,5% – while the monthly repayment with a 20% deposit would be around R5450.”
Rademeyer says that for Generation X buyers, many of whom are putting children through school and caring for their parents while also trying to save for their own retirement, lower monthly costs are very important. This means that they should aim to put down the biggest deposit possible when taking out a new home loan.
“And if they are repeat buyers, they may well have built up some equity in their existing home that will help them to do so – and might even enable them to secure a loan at a better interest rate, which would reduce their monthly instalments even further.”
Meanwhile, he says, for baby boomers that are either retired or about to retire, living on less income is often their concern.
“And if you’re a baby boomer with lots of equity in your home but less income-generating savings than you hoped for, one option to discuss with your mortgage adviser is selling your home in order to downscale to a smaller, cheaper house or apartment and get cash back to put into your retirement savings.
“In this case you would probably want only a very small mortgage and should also look at paying the biggest deposit possible. In addition, you should ask your adviser to help you get pre-qualified in order to see what sort of loan you can get on your retirement income.”
It is also worth noting, Rademeyer says, that like any other investment plan, a home-buying plan always proves more effective if you start young, because your home equity grows as you pay off your loan and your home appreciates in value.
“The best outcome is if it is fully paid off by the time you want to retire, so that you can live there rent free or use the proceeds to buy a smaller home for cash and still have some money left over to add to your retirement savings.”