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Nepal earthquake, a stark reminder of how crucial Home Owners Cover is

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I have had a Son and his two friends in Nepal for the last 2 weeks. He was two days out of Katmandu when the earthquake struck and two days shy of Everest Base Camp when the avalanche fell. Needless to say, it has been a long two weeks for my wife and I. The good news is that he and his friends are safe in Kat at the moment waiting for their flight out tomorrow.

But all this earthquake talk started my thinking about our insurance cover. Fortunately we don’t have many earthquakes of any size at all and just now and again have tremors to remind us of Mother Nature. We have however, had recent fires in Cape Town that destroyed some beautiful properties.

Fires were in fact the start of what we now know as Comprehensive Insurance, in the 19th Century. Today it includes our household contents and cars mainly. In particular though, is Home Owners Cover [HOC] which is at the heart of what we probably call natural disasters.

The good news is that if you have HOC, you are covered for what are called Fire and Allied Perils which includes damage caused by Fire, Wind, Water, Storm and, thankfully, Earthquake including its cousins, Mudslides and Avalanches. [On a side note, one wonders how many of those poor people in Nepal have HOC]. You can check your policy, but this cover is a general rule for all policies in South Africa as it emanates from the fires that were prevalent in wood-built cities of old.

Some policies may have conditions that you need to understand. For instance, a house in a known flood plain may be refused HOC cover for Water or the owners may have to pay an excess to their premium for such cover. Some policies may insist that the construction of a building is such that it is engineered to withstand a 5-plus earthquake. It’s not a bad idea to understand your policy wording to be very sure of what is included or specifically excluded.

The crux of this conversation has two angles:

–   Firstly,  get insured for HOC as you should be for contents and cars. Do not delay, the loss you could take in a fire is unbelievable and they do happen. When your bank has a bond over your house, this is a general rule. You probably are insured per course with the bank but may have your own insurance. In the latter case, the bank insists that you let them know that you are still insured once a year or they will reinstate your policy at your cost and include the payment in the bond payment. Bottomline, they have a right to insist, as the bond holder, that you are and remain insured.

–   Secondly, make sure your insurance is for the right amount. This amount is the replacement value of your home. Find out from estate agents what your home is worth in the market and ask them if that estimate is close to replacement value. Things change over time and replacement from older areas can be far more expensive than you imagine. Please don’t delay.

Some final thoughts. Often you’ll read that only 30% of cars in South Africa are insured; that’s staggering and not good news for anybody. In turn, house under-valuation is an ongoing problem for insurers. You should also be clear in a sectional title development that your Body Corporate is representing values correctly. Ask your chairperson of the BC to show you the latest policy and values for your unit. As regards Subsidence and Landslip cover this can be a nightmare. Simply, if your retaining wall falls over who pays – once again, be certain that there walls are valued and covered in your HOC. The same goes for sinkholes – make sure you understand your cover.

Our experience in Nepal has alerted us deeply to the things in life that are precious and worthwhile. Homeloan Junction cares about your home and your family way beyond getting your bond approved. That’s why we write these blogs with useful and hopefully, compelling information. Check out your policy and its cover; you may be very grateful you did.

Get in touch with us if you have any questions  on this, or anything relating to home ownership.

Yours in Property.

The Transfer [Conveyancing] process

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There are essentially two contract processes that enable you to buy a property, whether residential  [our main focus in this article] or commercial.. These are the Bond Registration process and the Transfer [Conveyancing] process.

We covered the Registration process in our last article. Remember what is happening here in the Transfer [Conveyancing] process is that a qualified Transfer Attorney is assuring that the property is transferred from the Seller to the Buyer without any doubt as to ownership in the future.

Thanks to attorneys Yammin Hammond Inc. for their easy-to-understand Transfer [Conveyancing] process:

Transferring ownership of a property from the Seller to the Buyer (i.e. conveyancing) is a complicated and often misunderstood process. It involves a number of parties, many of whom have conflicting interests. All of them, however, have to coordinate their efforts to ensure that the documents arrive at the Deeds Office on the same day.

There are other parties, such as the Estate Agent, Mortgage Lender and Bond Originator, who have a financial interest in the transaction and often want it to be completed in the shortest possible time.

Understanding the sequence of events will help you monitor the process accurately and also give you an idea of the time remaining at each stage.

Below are some of the steps typically required to transfer a residential property. It has been written in simple language and illustrates the relationships between the various parties.Much of the jargon and key concepts are explained in the notes on the right hand side.

Step Description Notes
1. You sign an offer to purchase a house from the Seller using an Estate Agent

 

 The Sale Agreement (or Deed of Sale) is a binding contract between the Buyer and the Seller that forms the basis of the transaction.
2. You apply to the Bank for a loan or a Bond Originator applies on your behalf A bond application normally forms part of the “suspensive conditions”, i.e. events that need to happen before the sale is finalised. Another common suspensive condition is the sale of an existing property.
3. The Estate Agent sends the Sale Agreement to the Transferring Attorney The Sale Agreement (or Deed of Sale) is a binding contract between the Buyer and the Seller that forms the basis of the transaction.
4. The Transferring Attorney contacts the Seller’s bank and requests the original Title Deed and the cancellation figures If the Seller has a bond over the property, his/her bank will hold the Title Deed in safekeeping. The bank will also provide cancellation figures (or discharge costs), i.e. how much is required to settle the Seller’s bond.
5. Your bank instructs their attorney, the Bond Attorney, to register a Mortgage Bond A Mortgage Bond is a special loan which uses fixed property (e.g. a house) as security and it is registered in the Deeds Office.
6. The Seller’s bank instructs their attorney, the Cancellation Attorney, to cancel the Seller’s bond The Cancellation Attorney sends the Title Deed and guarantee requirements (i.e. the cancellation costs) to the Bond Attorney and the Transferring Attorney.
7. The Transferring Attorney requests a Rates Clearance Certificate from the Local Authority A property cannot be transferred if there are outstanding rates and taxes. The Transferring Attorney will also do a Deeds Office search at this stage to check the details of the property.
8. The Transferring Attorney assembles and prepares the documents This can take up to 3 weeks.
9. You will be called by the Transferring Attorney to come in and sign the documents You will be required to sign a Power of Attorney to Transfer as well as a number of affidavits to verify your marital status, financial status and identity. Remember to take your identity document and FICA documents.
10. You pay the transfer costs and your share of the rates and taxes You will be presented with a pro-forma account, which is an estimate of the costs. You will get a final account after registration when the actual costs are known. The costs vary because the date of registration is unknown at this stage and some of the costs are determined by this date. Note: The Seller will also pay his/her share of the rates and taxes at this time.
11. The Transferring Attorney instructs the Lodging Attorney to lodge the documents in the Deeds Office The Lodging Attorney is located near the Deeds Office and acts on behalf of the Transferring Attorney (who may be far away from the Deeds Office – even in another town).
12. The Lodging Attorney contacts the Cancellation Attorney and Bond Attorney to ensure the documents are lodged together on the same day The documents have to be registered at the same time because the Seller’s bank has guarantees that ensure it will be paid when their bond is cancelled and they are not prepared to cancel the bond until the new bond is registered.
13. The Deeds Office Examiner carefully checks all the documents This stage is called “on prep”. It can take between 7 – 10 working days depending on how busy the Deeds Office is.
14. The Deeds Office Examiner contacts the Lodging Attorney, Bond Attorney and Cancellation Attorney to inform them the documents are ready This stage is called “up for prep” or “up for fees”. It means the documents are all in order and they will be registered the next day.
15. The documents are registered The Buyer becomes the owner of the property and the Seller is paid out the net proceeds. The Estate Agent is paid their commission.
16. The Transferring Attorney sends the Title Deed to your bank It can take up to 3 months for the Deeds Office to send the Title Deed to the Attorneys. If you don’t have a bond, the Title Deed will be sent to you.

For more information on your Homeloans options, contact HomeLoan Junction Today!

 

Your mortgage bond is your best friend

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Obviously, you don’t feel like that right now. That monthly payment for “as long as you’ll live” feels interminable. And you’re hearing lots of news about inflation and rising interest rates. Then there’s all those other expenses that chew the rest of your monthly income.

But let’s look at things a little different and see some light at the end of the tunnel.

  1. Your mortgage bond gives you your primary place of residence. It pays for “home”. Your home is growing in value, slowly but surely. So, at some point in time, when your salary has risen and your bond has decreased you will have Equity in your house. That is a turning point in your wealth creation. Just by the way, I once said that your home is most peoples’ biggest asset and I was corrected. Your pension, for most people, is their biggest asset so look after it.
  2. When you have the spare cash monthly, pay extra on your bond. If I told you just a 10% increase in payment would save you 5  years [54 months to be precise], in payments. On a R1m bond over 20 years that equals R341662 in saving. Obviously, that gets better over a 30 year period and with more than 10% incremental payment. Can’t do it now? Then set the financial goal to force a saving of whatever you can afford.
  3. Remember, whatever you save earns tax free returns. The reason is simply that you save interest instead of paying interest and the bank earns less while you have a saving over the period.
  4. Obviously, there comes a point when your bond may be paid off. That’s a huge saving in monthly cashflow. Aim for it, it holds a hidden gem.
  5. At some stage, your equity or your paid off bond releases cashflow for an investment property. That’s an exciting prospect.

We’ll talk more about property investment in this blog, but aim in your portfolio to have a rented property or two when you retire. The great thing about it is that it is paid by somebody else. Of course, there are nightmare stories about tenants but there are many more about great returns from a tangible asset. What is most interesting about a rented property is that the mortgage bond, serving as an access facility, becomes your overdraft if you want it to be. Interest is tax deductible and the facility can be used for all sorts of luxury and wealth generating activities. For instance but not recommended, you can go overseas and repay the bond. Better still, you can buy a business or invest in other assets or another property by simply using the paid off rental property. It also helps that if a business doesn’t succeed, you have not risked your home in the process.

Property may not always be the best return in your portfolio. Many will also say that a property fund is the easiest way to invest in property – this blog does not disagree. But, for the sheer investment enjoyment of property, a buy-to-let investment is good to own and use.