What determines your home loan rate?

House with sold sign“I bought a house 15 months ago and I have been paying about R500 extra. As a first-time buyer I received a +0.4 prime rate. Can I get the bank (Absa) to review and reduce my interest rate, if so what do I need to do and what will they be assessing?” asks Simphiwe

Maya replies: The interest rate you have is pretty good when I compare it to what other people are being charged. At very best the banks are offering prime, but it never hurts to ask!

Your affordability has been proven by the fact that you are able to pay in more each month and that will be in your favour. You also benefit by ensuring that your bond is paid off quicker so that is great.

The bank will also consider your credit record so it may be worth getting your free credit record check and seeing if there is anything on there that reflects badly on you.

According to Absa the loan-to-value amount will be taken into consideration. In other words what is the house worth relative to the home loan? A higher loan-to-value amount indicates that the bank could potentially incur higher losses if the customer defaults.

Absa also takes into account whether or not the client has an existing relationship with the bank. “Existing clients will on average receive better rates due to the bank having first-hand knowledge of their banking behaviour. Ultimately, understanding the performance of a client ensures that we price according to the client’s risk”.

Absa says it is possible for a client to renegotiate the interest rate and recommends that you discuss it with a home loan consultant at an Absa branch.

Should I switch my home loan?

“I have a joint home loan with Absa and I’m banking with FNB. My partner passed away and I want to make a change of ownership since the bond is registered in both our names. The balance is R250 000 and the property is valued at R650 000. Is it possible for FNB to pay the balance to Absa and I pay the loan directly to FNB?” asks Steve.

Maya replies: It all comes down to costs. If Absa requires you to re-register the loan in your name then it would make sense to speak to FNB and find out if they would offer you a better rate on a home loan. The fact that you bank with FNB will be in your favour.

If Absa does not require you to re-register the home loan and there is no cost in changing the loan to your name then it may make sense to stick with Absa as you would incur fees to register your bond with FNB. That said, it is still worth finding out what interest rate FNB would give you and how that compares to Absa’s rate, as over time a lower interest rate may offset the costs of re-registering. As you bank with FNB you may even be able to negotiate lower registration fees.

Do your homework carefully and see what solution will be the most cost effective.

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