Yeah true, I thought saving for the R150 000 deposit would be more than enough, but I was wrong.
I am going to be broke after this transaction
-
Join the MyBroadband community
South Africa’s biggest forum. Discuss, discover, and connect with thousands of members.
-
Question of the Day: Main reasons you wouldn't get an EV?
Home Loan dilemma
- Thread starter Viper25
- Start date
Yeah true, I thought saving for the R150 000 deposit would be more than enough, but I was wrong.
I am going to be broke after this transaction
I got a nasty surprise with my home loan... the banker agreed to include the costs (transfer duty, etc) in the bond amount - ABSA then changed bankers and when property was transferred I got whacked with a huge bill for those, and then it went through a day before month end so the next day my first payment was also due.
HavocXphere
Honorary Master
"Replacement cost" has a specific meaning in a finance context. It means market price of an asset in the same state & condition as the one being replace. Not a better/newer one.
Hate to break it to you but that house was not worth 2.1m when you picked it up (might be now though). As you said the bank sent an assessor. He works for the bank. The bank cares about only two things: Extracting maximum interest from you and minimizing the risk of them not recovering their investment if you fail to pay.Why? Its property? We picked up our house for R1.6mil - its valued at R2.1mil... if its completely destroyed should I only get R1.6mil? That doesn't put me where I was
What happens in 10 years time, you still only paid 1.2mil for your house, can it only be insured for that?
These two goals are in conflict with each other:
Max interest->Lend as much as possible.
Minimize risk of disaster -> Lend as little as possible against as much collateral as possible.
Within the bank these are two distinct function: The one is handled by risk management, the other by sales. Both get performance bonuses.
The easy (& bad) solution to this is to inflate valuation numbers:
Risk management is happy: They've got 1.6m debt secured by a property valued at 2.1m. Yay! Risk management dept gets a bonus.
Sales is happy: They managed to sell a 100% mortgage and get lots of interest. Sales dept gets a bonus.
Smiles all round.
Doesn't matter that the 2.1m doesn't reflect reality. It allows the banks to take higher risks while pretending that they are playing it safe.Interestingly due to the way foreclosure works, the risk management actually works out fine despite the 1.6m vs 2.1m difference (for the bank) as long as the buyer manages to hang in there for say 2-3 years.
The truth is unless either the buyer or seller is an idiot, purchase price = market price = value. In the absence of market distorting forces (idiocy, pressure to sell etc) that will always be true.
As for the 10 year issue: I was talking about what it should be insured for initially. Nedbank wants to insure a 1.2m house for 1.5m. The house is then over-insured. That is very bad because you pay higher premiums but get zero benefit (since the pay out replacement cost, not insured amount). Ideally you want the insured amount to always match the current value of the asset, to ensure that you are neither over insured nor under-insured at any point. You do this by constantly updating the insured amount.
Nasty surprise. You have to be so careful with these banks. Buying a house is very very stressful.
I need a holiday..if only I could afford one
Very interesting. I was surprised by the variations though. One bank insures a R1.35M house for R1.2M and another bank insures the exact same property for R1.5M.
"Replacement cost" has a specific meaning in a finance context. It means market price of an asset in the same state & condition as the one being replace. Not a better/newer one.
Hate to break it to you but that house was not worth 2.1m when you picked it up (might be now though). As you said the bank sent an assessor. He works for the bank. The bank cares about only two things: Extracting maximum interest from you and minimizing the risk of them not recovering their investment if you fail to pay.
These two goals are in conflict with each other:
Max interest->Lend as much as possible.
Minimize risk of disaster -> Lend as little as possible against as much collateral as possible.
Within the bank these are two distinct function: The one is handled by risk management, the other by sales. Both get performance bonuses.
The easy (& bad) solution to this is to inflate valuation numbers:
Risk management is happy: They've got 1.6m debt secured by a property valued at 2.1m. Yay! Risk management dept gets a bonus.
Sales is happy: They managed to sell a 100% mortgage and get lots of interest. Sales dept gets a bonus.
Smiles all round.
Interestingly due to the way foreclosure works, the risk management actually works out fine despite the 1.6m vs 2.1m difference (for the bank) as long as the buyer manages to hang in there for say 2-3 years.
The truth is unless either the buyer or seller is an idiot, purchase price = market price = value. In the absence of market distorting forces (idiocy, pressure to sell etc) that will always be true.
As for the 10 year issue: I was talking about what it should be insured for initially. Nedbank wants to insure a 1.2m house for 1.5m. The house is then over-insured. That is very bad because you pay higher premiums but get zero benefit (since the pay out replacement cost, not insured amount). Ideally you want the insured amount to always match the current value of the asset, to ensure that you are neither over insured nor under-insured at any point. You do this by constantly updating the insured amount.
Apparently you must have been there when I purchased the place, you seem to know quite a bit about? The sellers sold at the first price I gave them - they were desperate and buggering off out of SA. It was valued at only R1.95 by the bank - a private assessor valued it at R2.1m - and considering current markets - it hasn't changed.
and purchase price != value... unless you're living under a rock, its way more expensive to build now. With the current market, most sales the replacement cost of the building does not equal the purchase price.
Last edited:
Yeh - but I searched for quite some time... I went into every place and offered absurdly low prices in comparison to the listing price... all of them said no... kept telling my SO that eventually someone will accept... and eventually someone did.
fastesthamster
Senior Member
- Joined
- Mar 1, 2006
- Messages
- 825
- Reaction score
- 55
Nedbank
Rate - Prime - 0.6
Loan amount granted - R1 147 500
Insured for R1 500 000
Property Insurance premium - R450
Any advice please, which deal is better ?
Nedbank, you don't have to take their insurance...
Would it not be worth opening an account - something like the R65pm savvy account to get the full financing. Or do they want you to deposit your salary in the account as well. What about opening a savings account - get the full financing, and just put R1000 into the savings account.
Ou grote
Honorary Master
And then they booby trapped the place, and got the neighbour an annoying dog as a going away prezzie.
Salary has to go into the account, so the savings account wont work.
Lets not remind me - I think I've spent about R200,000 on the house already... and I haven't even gotten to the kitchen...
Ou grote
Honorary Master
That last part is a bit crazy.
What if you need money to fix the geyser, or a leaking roof, etc etc...
And if the interest rate goes up next year?
Seriously, try an originantor and see if they find you a better deal.
Even 0.1% saves you around R100 a month.
The application was already made, so they wont consider another application on the same property coming from a different source.I.e a bond originator.
Yes, I realize that a 0.1% decrease makes quite a difference, that is why I am biting the bullet and financing the shortfall on my credit card and going with the better rate. I hope to pay off the credit card in a few months.
Ou grote
Honorary Master
Ideally you want at R50 000 to R100 000 handy to help you through the 1st 2 years.
Even a 1% increase in prime means you're paying an extra R900 or so a month.
Maybe you're buying something that's around R200 000 more than you should be.
I'm a bit conservative with these things though...
I have to admit, I did go for a purchase price that was slightly over my budget. I kinda fell in love with the place and yes it is risky however I have done quite a bit of homework and I should be getting a bit more money in the next few months.
So just wish me luck hey?
Ou grote
Honorary Master
I have to admit, I did go for a purchase price that was slightly over my budget. I kinda fell in love with the place and yes it is risky however I have done quite a bit of homework and I should be getting a bit more money in the next few months.
So just wish me luck hey?
I am eyeing one that's maybe R100 000 too much for me.
As long as you know you can get through the 1st 2 years ok, you'll normally be fine.
But that means cutting down on a few nice things and paying extra into your bond every month.