A quarter of a million rand is a huge amount of money, but when it comes to forking out millions for a home, that R250,000 somehow seems a little smaller.
After all, if you consider paying R2,85 million for a home instead of R2.6m, or R4,3m versus R4,55m, the sum seems to get swallowed up, especially amid the excitement of being so close to buying your own property.
But if you take a step back and crunch some numbers, you may look at that R250,000 price variance a little differently and, perhaps, heed on the side of caution.
Property experts also warn against buying a home at the top of your budget to guard against future interest rate hikes and general cost of living inflation. For example, if you qualify for a R1,8m home loan, it is often a better idea to buy a property that costs less, giving you some room to manoeuvre should rates go up; if you buy for the full R1,8m, you may struggle to afford your bond repayments should interest rates rise.
Again, this is where a relatively small difference of R250,000 can actually have a bigger impact on your pocket than you think.
To help you put this in perspective, here are some numbers that may surprise you. At the current prime lending rate of 11.75 percent, your approximate home loan repayment on these above home values will be:
– R1,22m vs R1,47m
Monthly:
- R1,22m – R13,221
- R1,47m – R15,930
Total over 20 years:
- R1,22m – R3,173m
- R1,47m – R3,823m
– R1,63m vs R1,88m
Monthly:
- R1,63m – R17,664
- R1,88m – R20,374
Total over 20 years:
- R1,63m – R4,239m
- R1,88m – R4,890m
– R2,3m vs R2,55m
Monthly:
- R2,3m – R24,925
- R2,55m – R27,637
Total over 20 years:
- R2,3m – R5,982m
- R2,55m – R6,632m
– R3,4m vs R3,65m
Monthly:
- R3,4m – R36,846
- R3,65m – R39,555
Total over 20 years:
- R3,4m – R8,843m
- R3.65m – R9,493m
– R4,7m vs R4,95m
Monthly:
- R4,7m – R50,934
- R4,95m – R53,644
Total over 20 years:
- R4,7m – R12,224m
- R4,95m – R12,874m
As seen above, your repayments on a property that costs R250,000 more will be about R2,710 extra a month and R650,000 more over a 20-year repayment period.
If the interest rate increases by 0.25 percent in November, these differences will increase to R2,750 and R661,000 respectively.
Other house price variations and their financial impacts
– R100,000 difference
- R1,084 more a month
- R260,000 more over 20 years
– R200,000 difference
- R2,168 more a month
- R520,000 more over 20 years
– R300,000 difference
- R3,251 more a month
- R780,000 more over 20 years
– R400,000 difference
- R4,335 more a month
- R1,04m more over 20 years
– R500,000 difference
- R5,418 more a month
- R1,3m more over 20 years
For pros and cons on negotiating your offer-to-purchase price, read this article.
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