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how do home loans work?

Find out how a home loan works and how you can get your dream home.

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What is a home loan?

In simple terms, it is a loan given to you by a home loan provider, where the home or property you are purchasing is used as a form of security in case you cannot make the loan repayments. 

From the time that you secure a bond and it is registered, the home loan provider will keep your property’s title deed until your home loan is paid back in full. The home loan provider is legally entitled to keep the title deed, because until you have fully repaid your home loan your home remains their property.

Before you ​apply for a home loan:

  • Have a good idea of what you like and don’t like, where you’d like to buy and the value of property in that area
  • Compare home loan rates and home loan providers for the best deal
  • Keep your family’s needs in mind and make sure the home you buy works for your lifestyle


The two key factors in your loan repayment are how much you borrow, and the repayment term. Generally you are required to pay back the home loan, plus interest, over a set period of time, most commonly between 20 to 30 years. 

The interest on your bond is based on the current prime interest rate determined by the South African Reserve Bank (SARB). Your instalments will change according to how the interest rate increases or decreases. For the first few years, most of your loan repayments will go toward paying off the interest. Over time more of your repayments will go toward paying off the actual loan amount.

Based on a purchase price of R1 000 000, with a 10% deposit, here’s an example from SA Homeloans of how a home loan works:

Tip: Check your affordability with SA Homeloans’  Affordability Calculator.


How do I qualify for a home loan?

According to SA Homeloans, if you earn a regular monthly income you’re well on your way to getting your home loan approved. One of the most important factors a home loan provider will use when they consider you for a home loan is your loan affordability. This is based on what you earn compared to what your monthly loan repayments could be.

There are a number of other things the loan provider will take into account when they consider you for a home loan.

Some of the most important ones are:

  • Age
  • Income and job stability
  • Other additional income you may have
  • Credit history
  • Other debt
  • The size of the deposit you can put down

SA Homeloans will also not approve a home loan if the repayments are more than 30% of your single or joint gross monthly income.

Tip: The cost of the property isn’t the only cost to think about. There are other costs to consider such transfer duties, attorney fees, moving and the value of the time you’ll spend on everything.


How to reduce the total cost of your home loan

A small additional payment into your home loan account every month can make a big difference. The interest on your bond is calculated daily. This means the amount you owe the bank could increase every day. Paying extra money into your bond account, right from the start, before interest starts increasing, will help reduce the final cost of your home loan and decrease your payment period.


What happens if I can’t pay my home loan?

If you can’t make the loan repayments, your home loan provider will take your home. It will also start a process known as foreclosure, where it will attempt to get back the balance owing by selling the home at an auction. When the property is sold, the money from the sale is used to pay what you owe, minus the legal costs. If there is an outstanding amount, you will be responsible for paying it.

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