Borrowing money to purchase a home is, most often, the biggest financial commitment you will undertake. Knowing how home loans work will help you to make this commitment with a thorough understanding of the implications and the reasons behind the “fine print”.
A home loan is a secured loan that is obtained to purchase a property by offering it as collateral. Home loans offer high-value funding at economical interest rates and for long tenures. They are repaid through EMIs. After repayment, the property’s title is transferred back to the borrower.
Here’s the average salary required in each major province. We also explain how low-income earners can get a home with First Home Finance.
How much of your salary should be set aside?
As a rule of thumb, you should be setting aside no more than 30% of your gross income for home loan repayments.
To get an idea of the salary you need, look at the following:
- The average price of a property in an area.
- The cost of monthly home loan repayments on the property.
- Compare the monthly home loan repayment to your salary to see if it equates to 30%.
For instance:
- The average price of a property in the Western Cape is R1 778 806.
- According to our Bond Repayment Calculator, the average monthly repayment on that amount; assuming a 20-year repayment term, 10% deposit, and current interest rate of 11.75; is R17 349.
- R17 349 is 30% of R57 830.
- Therefore, R57 830 would be the average salary to buy a home in the Western Cape province; the most expensive province in South Africa. This will vary from area to area.