Types of home loans in South Africa

Types of home loans
Types of home loans in South Africa

Irrespective of your reason for purchasing property and whether or not you’re a first-time buyer, it can be an exciting and stressful time, especially if you don’t know what to expect.

For this reason, we have put together this article to help you along the way. Below we have compiled everything you may need to know or keep in mind when buying a property.

There is hardly any time in life that is more exciting yet more stressful than when one decides they are ready to settle down and purchase a property – be it a family home, an apartment, a farm or an investment property. First off, congratulations on the decision! It is a big step and we want to ensure you’re fully prepared.

Affordability is crucial to a stress-free home buying experience

Whether you have a property in mind already or if you are just starting to look at homes, it is important to take note of what you can afford to pay for a home.

Thankfully, there are many online affordability calculators available to assist you in determining your affordability.

Additionally, it is of equal importance that when you apply for a home loan you shop around with different banks and mortgage brokers to ensure you’re getting the best interest rate and most affordable costs when you apply for a home loan, using a loan comparison site can be very useful – a slight change in interest rate can mean huge costs in the long run.

Secondly, when you are applying for a home loan you will need to determine what is going to be the best type of home loan to fit your pocket.

In South Africa, you are able to choose between four different types of home loans which we will review briefly.

Types of home loans in South Africa;

Variable-rate home loans

Whereby the interest rate is linked to the prime loan rate, therefore if the prime rate goes down, so does the interest rate just as if the prime rate went up so would the interest rate on the loan.

Fixed-rate home loans

With this type of loan you would pay a fixed interest rate for a period of one to two years. This rate is always more than the prime rate and can allow peace of mind since you do not need to worry about increased payments from one month to the next, however, it can be disadvantageous when the prime rates go down as you will still be paying the increased rate.

Capped rate home loans

It is very difficult to meet the criteria for this type of loan. As the name suggests you are interest rate is capped, therefore, you are protected when the rate goes higher than your cap as you will not pay more, and when the rate does down you still benefit.

First-time buyer home loans

Refers to an opportunity first-time home buyers get, whereby, when they do not have enough money for the deposit, banks are willing to offer more than 100% of the purchase price to help pay for the added costs involved with buying a home.

If you are a first time home buyer you may even qualify for a government grant that will cover any short fall between the amount you qualify for and the amount on the Offer to Purchase. 

Home buying costs in South Africa

As mentioned above, there are added costs involved when purchasing a property aside from just the property costs.

It is imperative that you keep these extra costs in mind when considering your budget for buying a property.

You should also remember that buying a Sectional Title will include additional costs that purchasing a free standing house will not. 

These costs include:

  • Transfer fees
  • Bond registration
  • Conveyancing
  • Bank initiation fees
  • In the case of sectional title properties provisional levies 

The cost of these depends upon which home loan provider, attorneys and conveyancers you decide to make use of – which is why we encourage you to shop around or make use of loan comparison sites.

With the above information out in the open, it is important to note that applying for a home loan does not need to be a long or lengthy process.

Applying for a home loan can be a quick and seamless process provided that you have all of your required documentation ready and at hand to be submitted with your application.

Making use of a bond originator 

One of the largest bond origination firms in South Africa is Better Bond. They originate more bonds than the rest of the country's originators combines. Other companies include Ooba and Capcubed as well as numerous others. 

Using a bond originator comes at no cost to you and will give you direct access to home loans from all the major banks in South Africa

Bond originators will collect all your documents and help you fill in the bond application forms after assessing your needs. They'll even be able to run a credit check and provide you with pre-approval if you're still shopping around for a property. 

Documents required for a home loan application

Applications can be completed online and supporting documentation can be uploaded along with applications. The documentation you will need to submit when applying for a home loan, whether you are applying by yourself or with a partner, include:

  • Proof of income in the form of 3 payslips (yourself & partner if applicable)
  • 6 months bank statements (yourself & partner if applicable)
  • Copy of ID (yourself & partner if applicable)
  • Proof of address
  • Monthly income + expenses statement (yourself & partner if applicable)
  • Personal assets and liabilities statement (yourself & partner if applicable)
  • Copy of purchase agreement

Hopefully, the above article has been helpful and informative, allowing you to have a less stressful experience when purchasing your home and securing home loan finance and being able to enjoy this exciting time to the fullest.

Popular & reliable direct lenders offering Home loans

  1. Capitec Home Loan Home loan

    Capitec Home Lo...

    • Loans up to R5,000,000
    • Term up to 20 years
    • Interest from 9.25%
  2. Absa Bank Home loan

    Absa Bank

    • Competitive rates
    • Term up to 30 years
    • Affordable finance
  3. Hippo Home loan


    • Compare home loans
    • Term up to 30 years
    • Interest from 9.5%
  4. Finsap Home loan


    • Quick services
    • Term up to 10 years
    • Interest from 5%