Home buying jargon
Feel like you need an interpreter to translate your offer to purchase? Don’t know the difference between a mortgagee and a mortgagor?
We’ve taken the confusion out of the sometimes complicated process of buying a house by rounding up 20 of the most common terms you need to understand before signing on the dotted line.
But first, some basics – A mortgage loan is the same thing as a bond: it’s an agreement between two parties, where one – the mortgagee (that’s us, the lender or creditor, SA Home Loans) – loans an amount to someone else – the mortgagor (the borrower or debtor – that’s you) so they can buy the home of their dreams. This property then acts as security on the loan, which is paid off by the mortgagee over a certain term (the number of years or months over which you’ll have to pay back the money).
AGREEMENT OF SALE
Also called a deed of sale, this is the written contract between seller and you as the purchaser that records certain terms and conditions that need to be fulfilled when you buy a property.
They say there are only three certainties in life: birth, taxes and death. Bond protection covers one of these. It’s a unique kind of life assurance taken out by the borrower (mortgagor), so that the amount owing on the bond is paid off in the event of death or disability.
CAPITAL GAINS TAX
Another of life’s guarantees: tax. The SARS website has all the nitty-gritty details, but essentially capital gains tax is what you may have to pay on any profit you make above a certain minimum when you sell a property that you’re not living in.
This is the transfer of the rights of ownership from one party to another – your dream home is finally yours!
This clause is included in an offer to purchase and gives the buyer five days to revoke his/her offer or terminate the sale. But you shouldn’t get cold feet if you’ve followed our guide to finding your perfect home.
CONSOLIDATION OF DEBT
Shopped up a storm and want to put all your debt in one place? Consolidating multiple high-interest, short-term loans (like store accounts, personal loans and credit card debt) into a single longer-term loan will also mean a lower monthly payment. This should be done responsibly, though – read more about how to do this in a financially savvy way here.
You’ll need to hire a specific attorney (lawyer) who is qualified to prepare documents, and attend to the transfer of a fixed property as well as the registration of mortgage loans.
This is a formal legal document that is signed, witnessed and delivered to affect a conveyance or transfer of property or to create a legal obligation or contract. Deeds offices are government departments (located regionally) where rights and interests in immovable property are registered.
If you’re not applying for a 100% home loan, this is the amount of money you’ll put towards the purchase of the property and to secure the sale.
You may be required to pay a once-off initiation fee when you apply for a home loan. Worked out according to the loan value and National Credit Act parameters, this will cover all costs incurred in completing the credit process such as getting credit reports and valuations, and conducting deed searches.
One of the most important numbers you need to remember when negotiating your home loan, this is how much you’ll have to pay back to the mortgagee each month. Instalments comprise monthly interest, capital repayment and may increase or decrease if linked to the national interest rates. Alternatively, if you have your HOC or Bond Protection with SAHL, the instalments will also include your insurance premiums.
When you take out a loan, you’re borrowing money you have to pay back. But you don’t only pay back the money you borrowed, you also pay the lender some extra – which is basically like a rental fee for getting to borrow the money – and that is calculated using an interest rate. The interest rate varies according to various factors – the period of the loan, the risk profile of the borrower, the size of the loan and if a deposit has been paid. We have a nifty video about this topic here.
This is a clever way to protect yourself against changing national interest rates and control your monthly instalments. With our CAP product, you can choose your own rate ceiling – usually 1, 2 or 3% above your current rate. Your interest rate can move up or down below this ceiling but cannot rise above it for up to two years. Find out more about this here.
While most banks base their interest rates on prime, SA Home Loans uses a money market rate called JIBAR. The Johannesburg Interbank Agreed Rate is a three-month deposit rate determined by a number of local and international banks, and updated on a daily basis. JIBAR usually anticipates movements in the REPO rate, and the benefit for SAHL clients is that their interest rates only move on predetermined quarterly reset dates.
This is the amount for which a property could reasonably sell on the open market.
OFFER TO PURCHASE
Found your dream home? The first step to sealing the deal is to make a formal offer in writing to the seller. This is usually done through an estate agent, must be signed by all parties and is subject to a time limit. An offer to purchase may be ‘clean’ (often a cash purchase) or “conditional” (usually subject to bond finance being approved or another property being sold).
Most South African credit providers will charge you a monthly fee for servicing and maintaining of the credit agreement between them. This is regulated in terms of the National Credit Act.
Want to move your bond from one credit provider or financial institution to another? This is called switching your bond – and SA Home Loans offers some pretty good deals to new clients.
This is the period (usually expressed in months) over which the borrower agrees to repay the bond. This is typically 20 years – that’s 240 months. But you can choose to pay a larger monthly instalment and thereby shorten the term of your loan – meaning you can be debt-free long before the two decades is up.
A title deed is proof of ownership of a property, and once this legal document has been registered at a Deeds office, it means you’re officially the owner of your brand-new home.BACK TO BLOG HOME>