Get a better interest rate and save for your future
Even in the current property market when there is less supply than demand in most popular areas, you would probably be very reluctant indeed to pay R50 000 or more over the market value when buying a home.
“But if you don’t take as much care when ‘shopping’ for a home loan as you do when selecting the property you want, you could easily end up paying at least that much extra for your home in the long-run,” says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s leading mortgage origination group.
“On the other hand, if you can cut just 0,5% off your home loan interest rate at the start, the savings on the eventual cost of your home could give your retirement savings a significant boost, or perhaps help to put a child through university.”
Although the current prime rate is 9,25%, he notes, most borrowers are only able to secure home loans these days at interest rates that are one or even two percentage points above this – or an average of around 10,75%.
“And at that rate, the total interest payable over 20 years on a R1m bond, for example, is around R1,44m. At an interest rate of 10,25%, however, the total interest payable over 20 years drops to R1,36m – or by R80 000.
“What is more, the lower interest rate will make your monthly bond repayment more affordable, creating the opportunity for you to pay more than the minimum and generate even bigger interest savings over the life of the bond.”
Of course, Rademeyer says, you will need to be in great financial shape to be granted a home loan at a preferential interest rate – and even then are not likely to succeed without the help of a reputable mortgage originator who will personally motivate your application and submit it to multiple lenders if necessary.
“And there is no ‘quick fix’ for a blemished credit record, so you should start polishing yours several months or even a year before you apply for home loan pre-approval.
Deal with any bad debt judgments against your name, and try to pay off any remaining debt until all your balances are down to 30% of your available credit. Don’t open any new accounts and, most importantly, pay all your bills on time, every month.”
In addition, he says, you need to save cash to cover a substantial deposit on your new home and the additional costs of purchase such as bond registration, legal fees and transfer duty if applicable. (There is no transfer tax payable on pre-owned homes priced at R750 000 or less.)
“Third, you need to work out home much you can comfortably afford as a bond repayment every month, then go through all this information with your bond originator to get an indication of how much you should be able to borrow – and whether you’re ready to apply for pre-approval at a beneficial interest rate
“After that, you will be able to go house-hunting with much more confidence, and secure in the knowledge that your dream home is not going to cost you more than it should in interest over the next 20 years.”