Before you make an Offer of Purchase on any property, there is one factor you should keep in mind: costs. From homeowners’ insurance to utility fees, owning property comes with a few monthly expenses. Here are some hidden costs you should consider before signing on the dotted line:
• Monthly Repayments
Unless you plan on purchasing property entirely in cash, monthly repayments are the primary cost of owning real estate. These are payments made to the bank monthly to repay a loan. The amount includes a pre-determined installment and interest that needs to be paid over a set period. Depending on the choice of bank, the loan period can span over 5 to 30 years.
• Interest Rate
The interest rate is essentially a fee the bank charges you for lending funds. It is based on the Prime Interest Rate, which is the industry standard. Most South African banks charge about 9% of the total loan amount. Other lending institutions may charge higher interest rates, some up to 11%.
Lenders may offer you a lower or higher interest rate depending on the value of your loan, the lending period, credit profile and many other factors. As a rule of thumb, shorter loan periods reduce your interest rate. Ask a consultant about other ways you can cut down your monthly expenses.
• Homeowners’ Insurance
If you are planning to finance your home through a bank, your monthly repayment will likely include a homeowners’ insurance premium. It is intended to protect your property from damage. Although the insurance is usually provided by the financing bank, you can search for more affordable options from other institutions.
Bear in mind that the homeowners’ insurance does not cover household items. If you wish to protect your personal possessions, you need a separate insurance for it.
• Utility Costs
Once you own property, you are expected to pay municipal fees for electricity and water. Because the cost varies each month, the use of these utilities must be monitored closely. Many South African homeowners are installing prepaid systems for this purpose. Be sure to shop around for the most cost-effective options.
• Levies and Taxes
Regardless of the type of property you purchase, you need to have a budget for levies, taxes and rates. Costs depend on the authority managing your property. If it is managed by the local municipality, you will be charged taxes and rates on a monthly basis. These fees go towards maintaining roads, sewage, refuse disposal and other public services.
For properties under management companies, like apartments within a complex, monthly charges vary slightly. In addition to utility bills and rates, owners are required to pay levies. Levies are often used to pay property manager salaries, repairs, taxes, insurance and maintenance.