Few discoveries are more annoying than finding out that a friend or neighbour in a similar financial situation is getting a better home loan rate than you are.
The home loan market has become more competitive over the past few years because the property market has been in the doldrums. This has made it easier to shop around for good rates.
Your home loan is probably going to be the single largest personal financial commitment you will ever make (unless you start a business) so getting the best interest rate possible is not a matter for sentimentality. However, there are good reasons for staying with the bank with whom you have built up a reputation over many years.
Duncan Reekie, divisional general manager of home loans at Standard Bank, says when a bank assesses a home loan application it considers the customer's standing, since this affects the risk of the loan. Standing includes the bank's ability to assess the way you run your accounts.
The big commercial banks offer various packages which include different home loan rates. Often these packages are based on the amount you earn and the value of your net assets.
Those who are offered the best home loan rates earn good salaries (at least R10 000 a month), have an excellent credit record with no adverse information against them, have a high degree of job stability and a low loan-to-value ratio if your house is worth R100 000 and you want a loan of R80 000 or less, this is a low loan-to-value.
Banks also take into account the proportion of your gross income that will go towards servicing the loan. Normally banks discourage you from spending more than 30 percent of your pre-tax income on your home loan. But if you earn less than R4 000 a month, the banks will discourage you from taking on a loan that will cost you more than R1 000 a month or 25 percent, whichever is less.
The self-employed have more difficulty in qualifying for the best rates because they may have difficulty in proving their income and their revenue tends to be less consistent.
When negotiating a good home loan rate, you can also try to have the bond registration fee (paid to the bank's attorneys) and the valuation fee reduced or eliminated.
While it is convenient to have all your banking at a single institution but you should at least find out what interest rates the other banks will offer you and, if necessary, threaten to move your business. If you are already tied into a home loan with one institution and feel you ought to qualify for a better rate, it is worth speaking to your bank manager. But you are not in a great position to negotiate unless you really are willing to move your account elsewhere and moving a home loan incurs costs like a bond cancellation fee (of a few hundred rand) and a bond registration fee (which depends on the value of the house, but can be R1 000 to R2 000) as well as smaller sundry costs.