5 things you should know before applying for a home loan
Banks are competing vigorously for bonds in a market where their lending has been restricted by recessionary fears and now being opened up. The banks have a lot of cash available to lend right now and are seeking to lend to individuals or campanies that are in good standing credit wise. The better your credit rating the better interest rate you will receive.
1. Your own bank will seldom give you the best home loan deal.
This trend has become more and more evident over the past year, as banks try to woo new clients from their competitors. Moreover, we’re seeing a sharp rise in instances where bonds are being declined by a client’s traditional bank and approved by another bank with which the client has no connection.
2. Your bargaining power ends the day your bond is registered.
If you’ve ever tried to get your bank to lower your bond rate, you’ll know what I mean. Make sure your bond originator shops around among the various lenders to secure the best possible rate concession. It’s too late to seek a better deal once your bond is registered and switching your bond from one lender to another is no longer viable.
3. You must give 3 months’ notice to cancel your bond.
When you sell your property, you should give the bank 90 days’ notice of your intention to cancel your bond. If you don’t, you’ll be charged a punitive cancellation penalty equal to 3 months’ interest. On a bond of R1million, this is like throwing R25 000 down the drain. The banks are inflexible on this cancellation penalty, and will no longer waive it, even if you place your next bond with the same bank.
4. Voluntarily increasing your monthly payment by a small amount will knock years off the term of your bond.
The miracle of compound interest! Play around with the Bond Calculator on my website and you’ll see that by repaying an extra R312 per month on a R1m bond, you’ll knock 5 years off the term of a 20 year bond and save yourself R433 160!
5. Make sure you’re getting the best insurance deal
Homeowners Comprehensive Insurance is compulsory if you have a bond. In the past, this cover was provided automatically by the bank (the mortgagee) and you were not allowed your own choice of insurer. Now you, the mortgagor, can shop around for the insurance cover that best suits your needs, and your pocket. Be aware, though, that should you choose an outside insurer, the bank may levy a monthly “admininstration fee” on your bond and this could negate the effect of a cheaper premium.
