If you take out a home loan on more than 80 percent of the value of your home, you will now have to pay a stiff new penalty interest rate.
Though fresh cuts in interest rates have brought relief to borrowers, three big banks Absa Bank, Standard Bank and NBS are now applying a penalty rate to that portion of new home loans which is more than 80 percent of the value of your home. As soon as your loan drops below this, your normal interest rate kicks in.
The introduction of the penalty rate, which applies only to new home loans, follows a move by the Reserve Bank tightening up on the way the banks finance these loans.
Each bank recovers the higher cost from you in a different way:
* NBS has decided to add 0,25 percentage points to your current home loan rate on the amount above 80 percent;
* Standard Bank is charging an interest rate premium of 1,5 percentage points above 80 percent. But as you repay your bond and the amount outstanding falls, the bank will progressively reduce the penalty rate with each of your repayments;
* Absa Bank charges you an interest rate on a sliding scale from 0,1 percentage points to 0,4 percentage points on the entire loan depending by how much your loan exceeds 80 percent of the property's value. The lower rates kick in progressively, but only with each five percent drop in the amount of the loan outstanding.
The effect of the new ruling is that on a R200 000 loan where the value of your house is also R200 000, you will be charged R600 more a year in interest at Standard Bank, R800 at Absa Bank and R500 at NBS. As your loan drops to 90 percent of the value of the property, you will be charged R340 more in interest a year at Standard Bank, R400 at Absa and R500 at NBS.
At Standard Bank if your usual home loan rate is 23 percent, you will pay 23 percent on the amount up to 80 percent of the value of the property and you will pay 23,3 percent if you borrow to the full value of the property. This drops to 23,24 percent on the portion over 80 percent of the property's value when your loan comes down to 95 percent of the property's value.
At Absa the decreases are applied in steps. For instance, if your usual home loan rate is 23 percent, you will pay 23,4 percent while your loan value is between 95 percent and 100 percent of the value of your house, and 23,3 percent for the band between 90 percent and 95 percent.
At NBS, because the penalty rate is averaged out over the portion of the loan exceeding 80 percent of the value of the property, you only enjoy the normal rate once you have paid off 20 percent of your loan.
The penalty rates are a new blow to consumers who were just beginning to relax as interest rates started to come down.
Last week Absa and Standard Bank kicked off a round of interest rate cuts with reductions in both home loan and prime rates.
Further rate cuts followed this week, with the major banks slicing one percentage point of their prime lending rates (the rates offered to their best customers on overdrafts and personal loans).
On home loans, First National Bank, Nedcor and NBS Bank lowered their loan rates by 0,75 percentage points to 23,25 percent. However, these rates have still not dropped to 23 percent which is what Absa Bank and Standard Bank have been offering since October 19.
Saambou Bank dropped its home loan rate for existing loans to 23 percent. Saambou's prime rate remains unchanged at 24,5 percent.
Mercantile Lisbon has not adjusted its home loan rate of 23 percent, but its prime rate has been reduced to 23,50 percent.
Consumers still have a long way to go to regain the ground they lost since March, when the banks started what was to be a series of interest rate hikes.
Both prime and home loan rates are still way off March levels, when the prime rate was 18,25 percent and the home loan rate 18 percent.