- The home loan interest rate determines how much you’re going to have to pay the bank, above and beyond the actual value of the home you are purchasing.
- When applying for a home loan, one of your most important goals should be to secure the lowest home loan interest rate possible.
- Some ways to lower your interest rate include paying a big deposit on the home loan, and applying to multiple banks so as to secure the best deal.
Securing a home loan is a significant step on the way to owning your dream home; and the home loan interest rate is the primary factor you should be looking at when comparing home loan packages. With that in mind, here’s everything you need to know about home loan interest rates in 2019.
What is a home loan interest rate?
The home loan interest rate is the bank’s way of charging you for the risk they’re taking by providing you with a loan. It determines how much you’re going to have to pay the bank, above and beyond the actual value of the home you are purchasing.
When applying for a bond, one of your most important goals should be to secure the lowest interest rate possible. And when the home loan is granted, you should do everything you can to reduce the repayment term and the interest that you pay. These will save you a great deal of money in the long term.
How to lower your home loan interest rate
“People tend to accept that their bonds require a monthly payment that they have no way of influencing,” says Kay Geldenhuys, Head of Sales Fulfilment at ooba home loans, South Africa’s largest home loan comparison service. “In fact, there are a number of things that you can do to either alter the amount of interest you end up paying or the term of your repayments.”
Here are a few ways to save on interest…
1. Save up for a large deposit
If at all possible, raise the biggest deposit that you can before buying a home, or save up for a large first payment while you are waiting for transfer to go through. “With a deposit, you will save money on your monthly bond repayments and be able to pay off your loan faster, saving thousands of rands and shaving years off the lifespan of your bond,” says Geldenhuys. “A R20 000 deposit on a R1 million home loan, at an interest rate of 10.25% will reduce your total repayments by R47 119 over 20 years.”
And, the bigger your deposit, the better your chances of getting a lower interest rate
and reducing the total interest charged on your bond.
2. Clean up your credit score
As far as your bank is concerned, the credit score is a big number above your head that tells them how much of a risk you are. Through various calculations based on your transactional records, the bank will arrive at a three-digit number ranging between 0 and 999.
Any improvement in your credit score can only work in your favour. You can clear your credit record by paying off outstanding debt, and ensuring you pay your bills timeously.
You can use ooba home loans’ Bond Indicator to calculate your credit score. This is a 100% secure, online tool that is available free of charge and without any obligations. Based on the information you provide, the tool will give you an indication of your credit rating, and it will also issue you with a Qualified Buyer’s Certificate that will enable you to house hunt with confidence.
3. Extend the term of your bond
Some people consider taking their bond over 30 years rather than the more standard 20. This reduces their monthly repayments, but ultimately increases the amount that they pay back, because the interest is charged over a longer term.
On a bond of R1 million with a 10.25% interest rate, extending the term to 30 years may result in a reduction in the instalment of around R855 per month, but the total repayments made by the end of the 30-year term will be R870 020 more.
“Increasing the term of your bond is only a good idea if you’re really struggling with affordability,” Geldenhuys notes.
4. Make extra repayments whenever you can
If you’re not struggling to make the monthly repayments, it’s actually always better to try to pay as much as possible into your bond each month. Interest on a mortgage loan is calculated daily and then billed monthly, so if you make additional payments into your home loan, you will reduce the outstanding balance as well as the interest that you pay.
“Every time you have some extra cash – a tax refund, a big commission, an annual bonus – pay some of that into your bond,” Geldenhuys advises. “You may miss it in the short term, but in the long run you’ll be far better off.”
5. Shop around for the best deal
Since the lending policy varies from one bank to another, you may be able to find a bank with a home loan package especially suited to your particular financial situation. An expert home loan comparison service like ooba home loans can assist in this regard, by submitting your application to multiple banks, and negotiating with the banks on your behalf. This is much better alternative to applying to a single bank through your private banker, and gives you the best chance of finding a home loan with the best interest rate.
Which banks offer the best deals on home loans?
It’s difficult to provide a definitive answer to this question, as it may vary depending on the applicant’s financial situation, and the specific bank’s lending criteria.
Furthermore, banks usually don’t publicise their lending criteria. However, you can look at the general performance and customer satisfaction ratings for South African banks to get an idea of which ones have the highest quality service, and the best understanding of their customer’s needs.
The South African Consumer Satisfaction Index for the country’s retail banks, compiled by consulting group Consulta, serves as an invaluable guide for determining just that. The survey, published in early 2019, showed these banks as the leaders in overall customer satisfaction:
Meanwhile, a survey conducted by The Sunday Times found FNB to be the most popular bank among SA youth, making it a potentially strong option for first-time home buyers.
Applying for a home loan
Applying through a home loan comparison service like ooba home loans improves your chances of securing the best home loan package, as they will apply to multiple banks on your behalf. Furthermore, they provide a free prequalification service that will help you determine how much you can afford.