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How to lower your home loan interest rate

Securing lower interest rates saves you money in the long-term. There are several straightforward ways to do this and we discuss them here.

Lower Home Loan Interest Rate

Article summary

  • Your interest rate is affected by the prime lending rate (set by the South African Reserve Bank), and how much of a risk the bank considers you to be.
  • Maintaining a good credit record will secure you lower interest rates.
  • Applying to multiple banks allows you to compare packages and choose the one with low interest rates.

Looking to save on your home loan? Reducing interest rates can save you significant amounts in the long term, and there are several straightforward methods for doing so.

What determines your interest rate?

  • Prime lending rate.
  • What the bank adds on.

The prime lending rate is set by the South African Reserve Bank, so there’s nothing you can do to lower that interest rate.

But the second factor is within your control. You can do several things to convince the bank to grant you lower interest rates.

What does the bank base their interest rate on?

They base it on how much of a risk they consider you to be.

Factors that affect this:

  • Your credit record. This is the primary factor that banks take into account.
  • Your deposit. A larger deposit reduces the risk for the bank.
  • The leniency of the bank. Some banks will be more willing to lend at lower interest rates than others.

Your credit record

The best way to lower your interest rates is to maintain a good credit record, which you can do by paying bills on time, avoiding debt, and clearing accounts.

What is a good credit score?

You need a credit score of at least 610 for the bank to consider your home loan application, while anything above 661 is considered a decent credit score.

Here’s a more detailed breakdown:

  • 781 to 850. Excellent.
  • 661 to 780. Good.
  • 610 to 660. Fair.
  • 500 to 610. Poor.
  • 300 to 499. Very poor.

What if my credit record is low?

There are ways to improve your credit record, such as by:

  • Pay outstanding bills.
  • Pay all your incoming bills on time.
  • Pay more than just the minimum instalment on your bills.
  • Pay off credit card debt.
  • Avoid spending more than 30% of your credit limit.
  • Pay off store credit, cell phone accounts and bank loans – especially for other assets, such as a car.
  • Refrain from opening new credit accounts where possible.
  • Check your credit report for inaccuracies and take it up with whichever credit bureau performed the calculation.
  • Close your accounts when you’ve paid the balance owed.

Improvements usually start showing up on the credit record after around three months, but it’s recommended to wait about six months before reapplying.

How can I find out my credit score?

If you get prequalified with ooba Home Loans, we will assess your credit score. Based on this, we’ll be able to determine your chances of qualifying for a home loan, and what home loan you’re likely to qualify for.

You can get prequalified by contacting an expert at ooba Home Loans or by using our free, online prequalification tool, the Bond Indicator.

The leniency of the bank

Banks have different lending criteria. Some will grant lower interest rates than others. Some may even be willing to approve home loans for applicants with low credit scores.

Thankfully, competition between banks is currently strong, increasing their willingness to grant favourable home loan packages in order to secure customers.

Your best bet: Apply to multiple banks

Since banks have different lending criteria and some will offer more favourable interest rates than others, it makes sense to apply to multiple banks.

You can do this with ooba Home Loans. We submit your application to multiple banks, allowing you to compare packages and choose the one with the lowest interest rates.

So apply for a home loan with ooba Home Loans and improve your chances of securing low interest rates.

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Estelle Vorster was really helpful in securing the best deal for my home loan, she not only negotiated a lower interest rate she went as far as securing 50% discount on the transfer costs.

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