First National Bank has broken rank with traditional mortgage lenders to
bring you cheap home loans.
FNB enters cheap home loan market
Charlene Clayton
FNB HomeLoans, a division of FNB Properties, this week launched the first of
its products - a discount loan at two percent lower than the prevailing base
home loan rate.
These loans are based on a funding mechanism called securitisation.
So far, discount loans based in securitisation, have only been available
through mortgage origination company, SA Home Loans, which entered the
market in February this year.
The new loans from FNB, called SmartBond, are available from this week for
both new and existing home owners who qualify. The minimum loan is R200 000.
To qualify for the loan:
u The loan amount must be over your prime residential property and not
holiday homes, business premises and vacant stands;
u The house must be located in a top residential suburb because these
properties are more tradable and present a lower risk for the bank; and
u The loan must not be more than 70 percent of the current value of your
property.
Another term of the loan is that you can withdraw surplus funds in your
account four times a year in minimum amounts of R1 000.
Jordaan says the prime attraction of SmartBond is the lower interest rate
which is based on the three month Bankers` Acceptance (BA) rate plus a
margin of 2,1 percent.
Currently you can get a loan at an interest rate of 13,1 percent which is
well below the home loan base rate of 15,5 percent. SA Home Loans is also
offering loans at 13,1 percent.
It is estimated that you could save about R343 a month on a loan of R200 000
over 20 years with one of these low-interest loans.
This translates into a saving of almost R85 000 in interest over the 20
years. Also, you can repay your loan in just under eight years if you
maintain your current repayment level.
Simon Stockley, chief executive of SA Home Loans, says the new development
has given the fledgling securitisation industry in South Africa a major
boost and competition is healthy and good for the consumer and the economy.
"Banks have enjoyed an extended honeymoon period in terms of their margins
".
SA Home Loans has processed more than 4 500 loans totalling over R1,2
billion.
Securitisation is a process whereby a parcel of home loans is "sold" to a
third party investor, both locally and internationally. These investors are
usually pensions funds or merchant banks.
The investors receive a return on the investment from the bond repayments.
SA Home Loans is set to "sell" its first parcel of loans totalling R300
million within the next month.
Richard Gahagan, of Absa, says the bank is monitoring the situation. Absa
dabbled in securitisation 10 years ago.
The success of securitisation depends on demand from institutional investors
to "buy" the loans and Absa is not convinced this demand is great enough.
Ed Dibden, of Standard Bank, says they have been considering securitisation
for some time but are not convinced that it is the only way to offer
low-risk borrowers a better rate.
He questions whether the BA link is the right product for customers at this
point in the interest rate cycle. The BA rate does lead rates on the way
down but it also leads in an increasing rate cycle, he says.