You may be saddled with a home loan you are now struggling to pay off, following the recent increase in interest rates. An option is to move your loan to another bank if you can negotiate a better deal. However, you should weigh up all the costs before moving your home loan to another bank. Charlene Clayton reports.
The name of the game when moving your bond from one bank to another is negotiation.
And you should only consider moving your home loan if you can negotiate a better deal at another bank, and after doing your calculations.
Before you take the leap, try to negotiate a better deal with your own bank. If you have been a longstanding customer you stand a better chance.
Sometimes banks will agree to give you a reduction in the interest rate on your home loan provided you move your other banking business, say, your current account, to them.
While it may be a nuisance to do so, because, for one thing, you have to inform those whom you are paying by debit order of the change in your bank details, it may be worth your while.
Remember, the base home loan rate at the major banks, which is quoted in newspapers, and now stands at 20 percent, is only a guide.
Home loans may be 1,25 percentage points lower than the base rate or as much as two percentage points higher.
Everyone will get a slightly different rate depending on how the bank values your business and how risky they perceive you to be.
Erik Larsen, a Standard Bank spokesman, says the following factors affect your ability to borrow money and the size of the loan for which you qualify.
* The bank will scrutinize your income and expenditure to assess whether you can afford the repayments on the loan for which you apply.
The general guidelines which banks use are that your monthly repayments should not exceed 25 percent of your gross monthly income if you earn between R1 500 and R3 999.
If you earn between R4 000 and R5 999, the repayments should not be more than 27,5 percent of your gross monthly income. If you earn more than R6 000, your repayments should not be more than 30 percent of your gross monthly income.
However, if the bank feels that you have a large number of debt obligations, the amount of the loan, based on the monthly repayments as a percentage of your income, will be adjusted downwards;
* Adverse credit reports on you could result in the bond you are applying for either being declined or approved at a lower percentage. So, instead of getting a loan for the full 100 percent of the value of the property, you may only qualify for an 80 or 90 percent loan;
* The relationship you have with the bank may affect its decision. For example, if you have been doing your banking at a particular bank for a couple of years, that institution is likely to view your application more favourably;
* The property will be assessed by the bank's assessors to determine the security for mortgage lending purposes. Market conditions and risk factors are taken into account; and
* The bank will look at the stability of your employment history and source of income.