There's a new kid on the block who is willing to undercut bank home loan interest rates by between two and four percentage points - and it's not a bank.
The banks' stranglehold over the home loan market could be about to break with the launch of a new company called SA Home Loans.
Banks will be "monitoring developments and will be looking more closely at their existing market share to counter any erosion," says Bob Tucker, chief executive of the Banking Council.
To counter the competition, some banks might drop their own mortgage rates, which means trimming their margins which they say are already lean - or they could well embark on their own securitisation programme.
Simon Stockley, chief executive, SA Home Loans says the company will specialise in home loans, which means it doesn't have to support other costly overheads and services.
You can either get a new loan or convert an existing home loan.
The company lends out money and packages the debts into what is known as a mortgage-backed security. The packages are sold to institutional investors, like retirement funds and life assurance companies, which need interest income.
The main criterion for qualifying for a loan with SA Home Loans is that you must have a minimum loan of R100 000 and have 30 percent of your own money invested in your property. This means:
* If you have an existing loan, you must have paid off 30 percent of the value of your property. (Remember it is the value of the property and not the size of your existing bond which is taken into account);
* If you want to take out a new loan, you must be able to put down a 30 percent deposit on the property you intend buying.
Interest on your SA Home Loans bond is based on the bankers acceptance (BA) rate, which is the interest rate paid by banks and big corporations. The rate can fluctuate daily depending how much money is available to this sector.
The BA rate this week was about 16,6 percent and the interest rate offered by SA Home Loans, was 19,2 percent (which includes a 2,6 percent premium to cover costs and profits).
The current base home loan rate offered by banks is about 22 percent, but you can negotiate a variable rate of up to 1,5 percent better than this depending on how much the bank values your business.
Assuming you qualified for an interest rate of 21,5 percent at your bank, you would still be better off by almost 2,3 percentage points by taking a loan with SA Home Loans.
This means you will be saving about R60 000 in interest on a R150 000 loan and almost R120 000 in interest on a R300 000 loan simply by paying a lower interest rate.
The cheaper interest rate means that every month you will have R243 more in your pocket on a R150 000 loan and R496 more on a R300 000 loan.
These figures assume you have added the administration and legal costs into the loan.
But if you continue paying the same instalment of R2 786 that you paid your bank on a R150 000 loan or the monthly instalment of R5 452 on a R300 000 loan, you will be able to slash the length of your 20-year home loan almost by half.
You will be able to shorten your R150 00 loan by 11 years and eight months. Similarly the life of a R300 000 loan can be cut by 11 years and six months. You would also have saved about R276 000 on a R150 000 loan and about R558 000 on a R300 000 loan.
When you take out a loan with SA Home Loans you will pay an administration fee which is the greater of R400 or 0,25 percent of the value of the loan.
There are also legal fees based on a sliding scale depending on the amount of the loan. SA Home Loans has organised discounted rates with various attorneys and valuers, so on a R150 000 loan the costs you have to pay are R1 770 and R2 870 on R300 000.
SA Home Loans will begin business in Durban, Johannesburg and Cape Town from next month.
For further information ring the SA Home Loans call centre on toll free line 086 0100 178.