How to lower the in­stal­ments on your home loan

George Herald - Private Property - - Property News -

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."

Goslett adds,

"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.’

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