Thursday, June 18, 2009

How much can I afford to pay for a new home?

It can be a rather daunting and stressful task trying to find a new home when you are unsure how much you can afford. For a single person, the bank will grant you a home loan at a monthly installment of 25% of your gross monthly income, and for a couple it is 30% of their joint gross monthly income.

The normal term of a home loan is 20 years (240 months) but some buyers opt for a longer period, not exceeding 30 years (360 months).

Based on your personal budget, you will be able to see how much monthly disposable income that you will have to spend on buying a new home. Remember to take into account your current and future monthly expenses.

Currently, in South Africa the home loan interest rate is at 11%. If you are unsure whether or not you will opt for a fixed or fluctuating interest rate when you eventually buy your home, I recommend that you increase the loan rate by 2% - 5% when doing your calculations. You will see the benefit of this increased rate in a future article.

The mortgage calculator below will calculate your monthly installments.

Mortgage Calculator

Loan Amount R

Interest Rate      %

Term of Loan      years


Number of Payments      months

Total Monthly Payment
(Capital + interest)

Your total monthly payment consists of a capital and an interest portion.

Visit your local bank’s website which should have various calculators available for you to use. I quite like Absa and Standard Bank’s maximum home loan affordability calculator of as it takes into account your monthly budget. The bank considers your debt-to-income ratio, which is a comparison of your gross income to housing and non-housing expenses.

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