What a difference a rate makes

Of course life would be much easier for estate agents if all their buyers were able to secure 100% home loans – but would it be the right thing for buyers?

Not necessarily, says Rudi Botha, CEO of SA’s biggest mortgage originator BetterBond, because lenders seldom grant interest rate concessions on 100% loans, and even a 1% concession on the interest rate that homebuyers are charged can have a major effect on their financial future, especially when taken over the 20-year lifespan of most mortgages.

“On a R1m bond, for example, an interest rate of 8% instead of the current 9% ‘standard’ rate would first of all automatically translate into interest savings of more than R151 886 over 20 years – which is money that could come in very handy when paying for a child’s tertiary education, for example.”

In the second place, he says a lower rate generally makes it easier for buyers to obtain a bond to begin with. In the example above, the minimum monthly repayment would be about R8400 instead of R9000, which means that the buyer would probably need to earn about R2000 a month less to qualify for the loan.

“And this might make all the difference between being able to buy right away and having to wait another year for a salary increase – by which time property prices will very likely have gone up too.”

Thirdly, says Botha, the lower minimum monthly repayment on a lower rate loan may just put the homeowner in a position where he is able to pay the loan off faster and save even more interest. “The buyer who is able to pay an extra R200 a month on the 8% loan, for example, will pay off the loan a whole year early – and shave off another R65 000 in interest.”

However, the fact is that there is really only one way these days that most buyers can even hope to qualify for a rate concession, he says, and that is to pay the biggest deposit possible.

“Of course, telling buyers this does not make agents or originators very popular, but once buyers see the very substantial benefits they stand to gain, they often start to think about deposits differently.

“And at the very least, they are likely to be in a better position to obtain a bond. The latest BetterBond statistics indicate that about 60% of loans approved are going to borrowers with a deposit – and that the average deposit required is lower than last year.”

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