If Valentine’s Day makes you think of proposing, maybe it should also make you think about buying a home before you splash out on a huge wedding.
That’s the word from Rudi Botha, CEO of South Africa’s leading bond originator BetterBond, who says that while many young couples dream of a wedding and reception with all the trimmings, they should seriously consider scaling down their plans and putting whatever they save towards the deposit on their first home.
“This may not sound very romantic, but buying a home is still the best way for most couples to start creating a financially secure future for themselves and any children they may have. Indeed, the latest statistics from the US Federal Reserve show that the net worth of the average homeowner is 44 times as much as the net worth of the average tenant.”
He says that paying a monthly bond instalment is what enables you to start building up this kind of wealth, in the form of equity in your home, which you will be able to use in the future to finance your children’s tertiary education, your retirement plan, medical emergencies or even just home improvements that further increase the value of your property.
“So obviously the sooner you can do this the better, instead of just continuing to pay rent for the next four or five years, especially when you consider that property prices are continuing to rise, albeit slowly, and that people are generally waiting longer to get married now and are already often late-starters on home ownership.”
According to Stats SA, the median age of brides is now 31 and the median age of bridegrooms is now 36. BetterBond statistics* show that the current median age of first-time buyers is 35.
However, says Botha, the key to unlock this wealth plan is a sizeable deposit equal to at least 10% of the home purchase price, so there really is an argument to be made for not going into debt for the wedding. “In fact, if you share your dream with your family and friends, they may even be able to help you raise the deposit for your home by starting a crowdfunding campaign as a wedding present, or giving you some cash instead of another toaster.
“This deposit will not only increase your chances of being approved for a home loan, but could also help you score a preferential interest rate on that loan – especially if you apply through a top bond originator like BetterBond, which uses a multiple-lender submission process to ensure that every client gets the very best rate possible.
“And that will lower your monthly bond repayments, which could even help you to pay your home off early and save a ton of interest.”
He says the current average variation between the best and worst rate offered on an individual application is 0.5%, and that on a loan of R1-million, for example, even that small percentage translates into potential savings of R4 000 a year off your home loan instalments and more than R80 000 worth of interest over the lifetime of a 20-year loan.
“What is more, if you plough just that R4 000 a year back into your loan account, you will pay off your home two years early and save another R143 000 worth of interest. Add a few more rands a year and you could own your home free and clear before your future children even go to high school – a prospect we think is worth quite a few glasses of champagne.”