Everything you need to know about home loans in South Africa

everything about home loans in south africa
Everything you need to know about home loans in South Africa

Home loans in South Africa are primarily offered by the four major banks in the country namely; ABSA, FNB and Nedbank.

In addition to these large banking institutions, SA Home Loans also offers loans, albeit they are generally seen as a last resort due to their slightly higher interest rates and more flexible lending criteria.

ABSA currently hold the majority of home loans and therefore has the largest market share in terms of home finance. Due to this large market share, they tend to offer some of the best interest rates.

Common questions about home loans answered

How much will the banks offer me?

The amount that you will qualify for based on your personal credit score differs from the maximum loan amounts offered by South African banks. For ordinary South African citizens that are employed full-time Absa and Nedbank will offer up to R5 million while FNB will offer up to R3 million.

Will I get a loan to buy vacant land in South Africa?

Of the four major South African banks, all the banks apart from Nedbank will consider offering a loan on vacant land however they will only offer between 60% and 80% (LTV). This means that if you wish to buy land you will have to come up with a minimum of a 20% deposit.

Can a permanent resident get a loan in South Africa?

Absolutely! Permanent residents that have either a permanent residence permit or a smart ID card or green bar-coded ID can apply for a home loan following the same criteria as South African Citizens.

Do I need life cover for a home loan?

  • If you get a home loan with Absa life cover is optional
  • FNB required life cover on all home loans up to R1 million
  • Nedbank requires life cover on all home loans up to R600,000

All the banks will however require in-house homeowners cover when you approve a home loan offered by them. FNB will consider home loan cover from an alternative provider if that cover meets their requirements.

How long should I be employed to get a Home loan?

Most people know that banks look at job stability when approving people for credit. This simply means that the banks may want to know how long you have been permanently employed but it has nothing to do with how long you have been employed with your current employer.

Absa requires applicants to have been employed for a period of 12 months or more while FNB requires only a 6 month employment period. Nedbank does not have a minimum period as long as you are currently employed permanently.

Maximum age for Home loans in South Africa

The maximum age for getting a bond in South Africa depends on the bank and the loan term that you are applying for. Nedbank and Absa require you to settle your home loan by the age of 75 while FNB requires that it be settled by 65 years of age.

This means that if you are 60 years old and want to take out a 5-year bond to pay off a flat for your granddaughter or grandson, you may do so with all the banks while taking out a 10-year bond may only be possible with Nedbank and Absa.

Fixed vs variable rate interest

All four major banks offer both variable interests and fixed interest home loans. What you should note however is that the fixed interest is typically only for a period of three years and that your interest may then be converted to a variable interest.

It is also worth noting that if you opt for the variable interest rate option when you apply for a bond you can always contact your home loan provider and request a fixed rate option for a given period of time.

Minimum & maximum loan terms in South Africa

The shorter your loan term the higher your monthly repayments and banks are well aware of this which is why you need to pass their strict affordability requirements to reduce their standard loan terms.

Most people opt for a 20-year loan period as this offers a reasonable payback term. ABSA offers a maximum loan term of 30 years. First National Bank specifies a minimum loan term of 5 years and a maximum loan term of 20 years. Nedbank offers a maximum loan term of 35 years.

Applying to your regular bank, is it worth it?

Applying with your regular bank for a home loan has a few significant advantages. They will look at your application more favourably, particularly because you have a history with them and they can quickly and easily access this history but also because they simply want to retain your business.

In addition, they offer certain perks and loan packages only to existing clients and, even a skilled bond originator, will not be able to access them. These are called “direct channel offers” and can only be accessed by you through a banker.

Even with these mentioned benefits, it is still more advantageous to apply to all banks, even if you choose your regular bank, simply so that you can compare offers as well as terms and other important conditions. You can also use a loan comparison site to compare mortgage products and get an indication of which type will suit you best.

Why you should use a bond originator

Using a bond originator will not cost you, the home buyer, a cent. Bond originators simply collect your documents and information and send it through to the various banks.

The banks will then individually assess your loan application and send their offers back to the bond originator. Once the bond originator has collected all of the offers they will compare them and make a recommendation to you indicating the best offer.

One important benefit of using a bond originator that you may not be aware of is that they can use one offer from a certain bank against an offer from a second bank in order to get that bank to lower their interest rate or even consider offering you a bigger loan.

You will be unable to skillfully negotiate a rate as a bond originator who knows the ins and outs of each bank’s home loan department and processes would. In addition, a bond originator who gets paid a commission on all the successful bond applications he or she makes will want your bond application to be approved just as badly as you do.

Popular & reliable direct lenders offering

  1. Cobol Loans Personal loan

    Cobol Loans

    • Loans up to R3,000
    • Term up to 6 months
    • Interest from 124%
  2. Lulalend Personal loan

    Lulalend

    • Loans up to R1,000,000
    • Term up to 10 years
    • Interest from 28%
  3. Capitec Personal loan

    Capitec

    • Loans up to R250,000
    • Term up to 84 months
    • Interest from 12.9%
  4. FNB Personal loan

    FNB

    • Loans up to R300,000
    • Term up to 60 months
    • Interest from 10.25%