Legal Talk – What you should know about Mortgage Bonds in South Africa (2024)

FAQs

What does a mortgage bond entail in South Africa? ›

WHAT IS A MORTGAGE BOND? A mortgage bond is based on an agreement in terms of which the Mortgagor borrows money from the Mortgagee and agrees to pass a mortgage bond over a specific immovable property in favour of the Mortgagee as security to the Mortgagee for the repayment of money.

The first few bond repayments made will cover the interest and fees occurred from the sale of property; later instalments will then go towards paying off the capital amount of the loan. If you fail to pay back the loan, the Bank will take possession of the home and it will go through a process known as foreclosure.

The lower your income, the lower the loan amount for which you can qualify. Your credit score will also play a big role in determining how much a bank is willing to lend you. As a general rule, you shouldn't be spending more than a third of your net monthly income towards your monthly bond repayments.

A mortgage bond is a type of bond backed by mortgages, such as real estate. Mortgage bonds provide liquidity to lenders, while borrowers can borrow larger amounts of money at a lower cost. Mortgage bonds are safer than corporate bonds, but usually have a lower rate of return.

The South African Reserve Bank (SARB) has announced a 50 basis point hike, taking the current prime lending rate from 10.75% to 11.25%. This recent hike marks the ninth rate hike since the current hike cycle started in November 2021, totalling 425 basis points over the period.

Their legal department will make arrangements for you to either sign a Power of Attorney in favour of the bank to market/sell your property or you can arrange to list the property independently. Further legal action to blacklist you and repossess your property will be taken if this does not remedy the situation.

The required deposit is usually 10% of the property price. Of course, the higher your deposit, the more you can afford to pay on a home loan. In other words, a high deposit will enable you to buy a more expensive property. Many first-time buyers opt for the 100% home loan, which removes the need for a deposit.

If your home has increased enough in value then, when you sell, the price you get will cover your remaining bond repayments and even some of the costs of buying your next home.

The Loan to Value amount is granted on the same basis as per SA Citizens with certain limitations. 2. Foreign Nationals: Applicants must have a valid foreign passport with a valid temporary residence visa such as a work visa, spousal visa, etc.

Can a 60 year old get a bond in South Africa? ›

" Banks will usually want the age for full repayment of the bond not to exceed 60 to 70 years old so a 60 year old buyer, whether first time or repeat buyer, would probably only qualify for a 10 year term, making the age 70 upon the final repayment of the home loan being made." Reducing the term, of course, increases a ...

How long does it take for the bank to approve a home loan in South Africa? Home loan approval usually takes around one week, although it can take longer if certain requirements haven't been met. You can use our Bond Calculator to determine what home loan you would qualify for.

Mortgage bonds can be securitized into financial derivatives and sold to investors, which provides more liquidity in the capital market and allows the transfer of risks. One of the drawbacks of mortgage bonds is the risk of losing the collateral if the borrowers fail to make the payments.

What Is a Mortgage-Backed Security (MBS)? Mortgage-backed securities (MBS) are investment products similar to bonds. Each MBS consists of a bundle of home loans and other real estate debt bought from the banks that issued them.

There are two types of mortgage bonds: pass-through securities and collateralized mortgage-backed securities.

The South Africa 10Y Government Bond has a 11.055% yield. Central Bank Rate is 7.75% (last modification in March 2023). The South Africa credit rating is BB-, according to Standard & Poor's agency.

The bonds are listed on the Bond Exchange of South Africa. They trade in the capital market at the yield to maturity. The yield to maturity is the rate that your holding will yield over the life time of your Bond. There is an inverse relationship between a bond's yield to maturity and the price.

The South Africa 30 Years Government Bond has a 12.505% yield. Click on Spread value for the historical serie.

A 100% home loan, also called a 'zero deposit bond', is a bond that covers the full purchase price of the property, so you would not be required to put down a deposit as part of the deal.

Bond registration usually takes about three months from the day your bond is granted. So three months for bond registration, plus another month until the first payment, means about four months from your bond being granted to the first payment.

What was the highest bond rate in South Africa? ›

Historically, the South Africa Government Bond 10Y reached an all time high of 20.69 in August of 1998. South Africa Government Bond 10Y - data, forecasts, historical chart - was last updated on May of 2023.

Fortunately, a bank does not charge fees for cancelling a bond that is paid up. However, they will assign a cancellation attorney to cancel the bond, and you will have to pay the attorney's fees. The legal fees will usually be in the region of R1 200 to R1 500 plus VAT.

Put a little extra in every month

The first and most obvious way to reduce your loan term is to put in extra money every month. You'd be surprised at what a big difference just a couple of hundred rand a month can make. For example, on a R1 000 000 bond at a 10.25% interest rate, monthly repayments are R9 816.

The process when you decide to cancel your bond:

The bank will require that you give a 90 Day (3month) early Settlement Notice.

A 30 year bond means lower monthly repayments with a higher interest rate, while a 20 year bond means higher monthly repayments with a lower interest rate. A 30 year bond costs more in the long-term, but leaves more room for additional expenses each month.

These costs are payable by the buyer to the SA Revenue Service (SARS) when the property is transferred from the existing owner to the new owner. This will normally be done by a Conveyancer, who acts on your behalf.

Typically the purchaser pays the transfer fees charged by the conveyancing attorneys attending to the transfer of the property into the purchaser's name. Therefore, other than bond cancellation fees that the seller will pay if the seller has a bond that has to be cancelled, lawyer fees are paid by the buyer.

Article summary. Basic paperwork required includes proof of your identity, the title deed for the property, some forms, and confirmation of your acceptance of the offer to purchase. In addition, you require five compliance forms that are issued following a home inspection.

In many cases, an existing bond can be increased by way of a 'further loan' to pay for something big, including renovations and building work. Call 0800 007 111 and speak to a BetterBond home loan consultant, who will be able to help you choose the right option.

Are South African bonds safe? ›

Safety: RSA Retail Savings Bonds are considered a safe investment option, as they are backed by the government. This means the bonds are less likely to default, and your investment is secure.

Article summary. Foreigners (whether they be natural persons or legal entities normally domiciled or registered outside the country) can buy property in South Africa. Foreign buyers or non-residents must comply with local legislation in that regard.

Yes. There are no real restrictions on foreigners buying property in South Africa – although you may struggle if you have a criminal record. The South African mortgage market is a mature one and you will probably notice several similarities with financial transactions in the UK.

South Africa 5 Years Bond Spread

The South Africa 5 Years Government Bond has a 9.475% yield.

What is a good credit score in South Africa? Your credit score will be a three-digit number ranging from 0 to 999. You need a credit score of at least 610 for the bank to consider your home loan application, while anything above 661 is considered a decent credit score.

Once your bond is approved, it takes around three months for it to be registered. Your first bond repayment will be debited from your account a month after registration, on a date chosen by you. You can elect to pay extra into your bond, in addition to what the bank debits from your account.

The minimum credit score for a home loan in South Africa is around 640. A score of 600+ will give you a fair chance of home loan approval - although this may vary according to which bank you use. A score of 670+ is considered an excellent credit score, significantly boosting your chances of home loan approval.

A disadvantage of mortgage bonds is that their yields tend to be lower than corporate bond yields because the securitization of mortgages makes such bonds safer investments. An advantage would that if a homeowner defaults on a mortgage, the bondholders have a claim on the value of the homeowner's property.

What is the downside to bonds? ›

Some of the disadvantages of bonds include interest rate fluctuations, market volatility, lower returns, and change in the issuer's financial stability. The price of bonds is inversely proportional to the interest rate. If bond prices increase, interest rates decrease and vice-versa.

WHAT IS A MORTGAGE BOND? A mortgage bond is based on an agreement in terms of which the Mortgagor borrows money from the Mortgagee and agrees to pass a mortgage bond over a specific immovable property in favour of the Mortgagee as security to the Mortgagee for the repayment of money.

With MBSs, the bank acts as the middleman between the homeowners and investors. Individual mortgages are closed by banks and sold as conventional loans. From there, they are added to a pool of similar mortgages and packaged as a mortgage-backed security. The banks then sell those mortgages on the bond market.

Most mortgage-backed securities are issued by the Government National Mortgage Association (Ginnie Mae), a U.S. government agency, or the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), U.S. government-sponsored enterprises.

In return for buying the bonds, the investor – or bondholder– receives periodic interest payments known as coupons. The coupon payments, which may be made quarterly, twice yearly or annually, are expected to provide regular, predictable income to the investor..

The 30% rule of thumb rate is helpful in this regard, as you can look at the estimated minimum income for a property in a certain area, and calculate what 30% of that would be. For example: Fresnaye, Cape Town: Average property price is R6 400 000, requiring a monthly income of R213 000, 30% of which is R63 900.

How long does it take for the bank to approve a home loan in South Africa? Home loan approval usually takes around one week, although it can take longer if certain requirements haven't been met. You can use our Bond Calculator to determine what home loan you would qualify for.

South Africa property bonds refer to amounts borrowed against a property. This can be for the purposes of purchasing or raising funds. The property is used as collateral by the lender in case of non-payment.

How much are bond attorney fees in South Africa? ›

Typically, the amount is fixed and vary from law firm to law firm. Nowadays, a typical amount for sundries is about between R1 200 and R1 500, payable before the registration of the bond. Sundries include expenses such as postage, petties, electronic instruction and generation fees, and Deeds Office searches.

The registration process typically takes between 8 and 12 weeks to complete. However, delays are possible if information is incomplete.

Safety: RSA Retail Savings Bonds are considered a safe investment option, as they are backed by the government. This means the bonds are less likely to default, and your investment is secure.

Local interest income

If you own bonds or have cash in the bank, then the interest you earn on this will be taxed. If you hold unit trusts then these often attract interest, which is taxable too. This interest income is subject to income tax and is taxed at your marginal tax rate.