Home Loan Advice: All About Interest

When applying for a home loan, one of your most important considerations should be securing the lowest interest rate possible. And when the home loan is granted, you should do everything you can to reduce the term and the interest that you pay. These will save you a great deal of money in the long term.

“People tend to accept that their bonds require a monthly payment that they have no way of influencing,” says Kay Geldenhuys, Property Finance Processing manager at ooba, South Africa’s biggest bond originator. “In fact, there are many things that you can do that may alter the amount of interest you end up paying and the term of your repayments.”

A deposit makes all the difference

If at all possible, raise the biggest deposit that you can before buying a home, or save up for a large first payment while you are waiting for transfer to go through. “With a deposit, you will save money on your monthly repayments and be able to pay off your loan faster, saving thousands of rands and years off the lifespan of your bond,” says Geldenhuys. “A R20 000 deposit on a R1 million home loan will reduce your total repayments by R41 656.”

And, the bigger your deposit, the better your chance of getting a lower interest rate and reducing the total interest charged on your bond.

Secure the lowest interest rate possible

The next step is trying to get the lowest interest rate possible from the outset. This is best achieved by shopping around for the best home loan deal.

“This can be done at no charge to you by an expert bond originator like ooba, who will present your home loan application in the best possible light to multiple banks, and, then negotiate with the banks on your behalf to secure you the best possible interest rate,” says Geldenhuys. “Home buyers hurry to accept a bond from the bank that offers them the biggest loan, with less regard to the interest rate, but securing a lower interest rate will save you a great deal of money in the long term.”

Extending the term of your bond

Some people consider taking their bond over 30 years rather than 20. This reduces their monthly repayments, but ultimately increases the amount that they pay back, because the interest is charged over a longer term. On a bond of R1 million with an 8.5% interest rate, extending the term to 30 years may result in a reduction in the instalment of just under R1 000 per month, but the total repayments made by the end of the 30 year term will be R685 000 more.

“Increasing the term of your bond is only a good idea if you’re really struggling with affordability,” says Geldenhuys.

Make extra repayments whenever you can

If you won’t be struggling to make the monthly repayments, it’s actually always better to try to pay as much as possible into your bond each month. Geldenhuys explains that you should always pay as much into your bond as you can afford, both at the outset and at any time that you have the extra finances.

“Every time you have some extra cash – a tax refund, a big commission or an annual bonus – pay some of that into your bond,” Geldenhuys says. “You may miss it in the short term, but in the long term you'll be much better off.”

Remember that if you pay your monthly installments at an interest rate of 8.5%, by the end of the term of your bond, you will have paid back more than double the value of the loan. Interest on a mortgage loan is calculated daily and then billed monthly. Because of this, if you make any additional payments into your home loan, you will reduce the outstanding balance and the interest that you pay.

“This allows you to repay the loan over a shorter term, which results in a saving in the total interest paid,” says Geldenhuys. “For instance, paying only an extra ten percent of your repayment every month can carve off around five years of your bond term and save you a significant amount of interest. And even a once-off additional payment will make a difference in the long term.”

Talk to your bank manager

The next steps you can take to reduce the interest charged and paid involve your relationship with your bank. There are two conversations that you could have with your bank manager.

“The first of these is about reducing your interest rate at some point down the line,” says Geldenhuys. “If you have a good credit history with your bank and are servicing your debt well, they may be willing to reduce the rate that they are charging you. And if the answer is no, find out when you can talk to them in future about a possible reduction.”

Another conversation worth having is fixing the interest rate you have with your bank, if analysts predict that the interest rate may increase. “The fixed rate is generally higher than the variable rate, but if an increase is anticipated, this can protect you against the additional costs,” says Geldenhuys. “It is always a gamble, however, because if the rate goes down, you lose the benefit of the decrease as well.”

- See more at:

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 19 Jan 2018
      Extending from Randfontein in the west to Roodepoort in the east and including the towns of Krugersdorp and Magaliesburg, the West Rand has a plethora of property available to residents who choose to make this unique area their home.
    • 19 Jan 2018
      When it comes to financial planning, doing the work to ensure you’re prepared for unexpected emergencies is just as important as ticking off your other goals and New Year’s resolutions. The beginning of the year is also the perfect time to review your various insurance policies.
    • 19 Jan 2018
      No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels.
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
    • 18 Jan 2018
      New year, new goals! If you’ve resolved to purchase your first property in 2018, then this 6-step guide from the Rawson Property Group is a must-read. It will help you navigate and simplify what is often be seen as a confusing process of buying your first home – right from the house-hunt to the house-warming.
    • 17 Jan 2018
      While the current property market may still favour buyers, it doesn’t mean that they shouldn’t be well prepared before putting in an offer to purchase.
    • 17 Jan 2018
      Lightstone lists Blair Atholl as the most expensive suburb with an average house price of R11.2 million, followed by Westcliff (R10.5 million), Dunkeld (R9.3 million), Sandhurst (R9.1 million) and Inanda (R7.2 million).
    • 17 Jan 2018
      As it currently stands, there are four main ways in which a home can be bought in South Africa, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who adds that deciding in which legal entity to purchase the property is not a decision that should be entered into lightly, as each has its pros and cons.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us