How to lower the instalments on your home loan
For most South Africans, money is tighter than those jeans you bought just before the winter season started. On the bright side, thanks to the everrising fuel costs and a weak economy, you could probably still manage to squeeze that near-empty wallet into the pocket of those jeans.
"Our current economy has restricted the cash flow of most consumers. Many homeowners are searching for ways to cut back on their expenses. One trick they could try is to request that their bank reduce the interest rate on their home loan. However, only a few banks would be willing to provide this service and will only grant it provided that the debtor has shown an impeccable payment record. It is a bit of a long shot, but if you are successful, you stand the chance to save thousands," says regional director and CEO of RE/ MAX of Southern Africa, Adrian Goslett.
The writer of the personal finance blog Stealthy Wealth gives a practical example. The original interest rate on his home loan was 0,05% below prime, and his instalments were around R9 219 a month with roughly R925 000 left to pay off over the next 18 years (216 months). He then had his interest rate reduced to 0,3% below prime, changing his instalment amount to R9 071 per month, saving him R148 each month and a total of R31 968 by the end of the loan term.
"During tight financial periods, this monthly saving can offer some muchneeded relief for households. This is why it is so vital to keep up with payments - even more so when times are good. During seasons when they have cash to spare, I would advise homeowners to direct this money into their bond repayments. Not only will this shorten their lending term, but should they ever need to lower their instalments at a later stage, they will also stand a better chance of being able to do so," says Goslett.
According to Mary Lindemann,
COO of Betterbond, not all banks will consider reducing your interest rate just because you ask. "Some banks regard your home loan agreement as a legal contract where the rate has been agreed on for a certain term. Other banks do consider relooking at the rate, based on the risk - i.e. the current loan to value (LTV) of the mortgage bond. Some banks will consider the request in an attempt to retain their customer and it will be referred to a special team called a retentions unit to consider."
"In order to apply for a lower instalment rate, you would need to submit a formal request to your bank stating how well you have kept up with your payments and requesting that they re-evaluate the interest rate based on the fact that you've proven to be a low-risk client. If this does not work, it might be worth exploring which rates you could receive at other financial institutions to use as leverage for your negotiations. Originators such as Betterbond do not assist with switching home loans, so you would have to do this research yourself.
After reviewing all your quotes, if you do decide to change your home loan from one financial institution to another that offers you a better rate, you need to consider the various ad hoc costs this move would incur and weigh this amount up against how much you will end up saving by the end of the loan term at your new financial institution".
‘Our current economy has restricted the cash flow of most consumers.’