Abstract
By using a dynamic instalment repayment plan to finance a mortgage loan rather than the usual fixed instalment financing, the threshold at which a prospective homeowner may enter the housing market may be lowered substantially. In this paper this method of financing will be evaluated to determine under which circumstances it could be used to help the low-income group to obtain housing, and also to highlight some of its deficiencies. Historic trends of income are also analysed to determine the income growth potential of the low-income sector. The income growth potential does not seem to distract from the potential of the dynamic repayment of mortgage loans.
Highlights
The individual homeowner often finances his home by putting down a deposit of say 20 percent of the purchase price and the remaining 80 percent by means of a mortgage bond which is repaid in fixed monthly installments over a fixed length of time, say 20 years. - 100 percent mortgage financing is provided by a number of financial institutions, this is normally only available to professional people or those who can supply some other form of security
When the interest rate is 14%, the initial installment is reduced by 48,1%, but the final installment is increased by 217,4% to R479,21
A model was developed to evaluate the usefulness of the dynamic installment method of loan repayment for prospective homeowners
Summary
To discuss the financing of housing for the individual homeowner in an Operations Research environment may be frowned upon. but if research regarding the use of Operations Research in business is examined. one finds that concepts regarding the time value of money, such as net present value. are listed as possible operations research techniques both in South Africa (Wegner, 1983: 120-124) and abroad (Schumacher & Smith. 1965: 1023-1027). The principle of dynamic repayment of a mortgage loan is not new (Jorgenson, 1977), it is important to investigate under what conditions this method of financing housing is viable, or perhaps even a better alternative to the fixed repayment schedule The results of this investigation are of a general nature and could be applied to any prospective home buyer. As the emphasis is on investigating a method of home financing for the low-income sector of the population, it is important to determine whether and to what extent this sector's income has increased over the last number of years This should indicate whether a dynamic repayment schedule could be affordable
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