How to get a good interest rate on your home loan

The interest rate on your home loan affects far more than your first monthly repayment. Over a 20- or 30-year loan term, even a small difference in the rate you receive can add up to a significant amount of money.

The encouraging news is that you do not necessarily have to accept the first interest rate offered to you. While broader economic conditions influence lending rates, banks also price each home loan according to the applicant’s financial position and the level of risk involved. Your credit history, existing debt, disposable income, deposit, and the way you submit your application can all influence the rate you are offered. Preparing before you apply can therefore make your home loan more affordable from the start.

Why your home loan interest rate matters

Most South African home loans are linked to the prime lending rate. When the South African Reserve Bank changes its policy rate, the prime lending rate usually moves in the same direction, affecting borrowers with variable-rate home loans.

However, this does not mean every buyer receives exactly the prime rate. Depending on your application, a bank may offer you an interest rate below, equal to, or above prime. This is often expressed as a rate concession, such as prime minus 0.25%, or a higher risk-based rate, such as prime plus 0.5%. A small percentage difference may not seem important when you are focused on getting the bond approved, but it can affect both your monthly budget and the total interest paid over the loan term.

A difference of just 0.5% in your home loan interest rate may not sound like much, but over the life of a bond it can cost, or save, you tens of thousands of rand. Here's how it could affect a R1 million home loan over 20 years.

Interest rates will change during a variable-rate loan, but the example shows why securing the most competitive starting rate is worth the effort.

Understand how banks assess your application

A home loan interest rate is based partly on prevailing market conditions and partly on the bank’s assessment of you as a borrower. The bank will consider your income, monthly expenses, existing credit commitments, employment history, repayment behaviour and the size of the loan in relation to the property’s value. It will also consider the property itself, as the home serves as security for the loan.

Each bank has its own lending criteria and risk appetite. One bank may view your application favourably while another offers a smaller loan, a higher rate or declines the application altogether. This is why the rate offered by your own bank is not automatically the best rate available to you.

Strengthen your credit profile before applying

Your credit profile is one of the most important factors considered during a home loan application. It provides the bank with an indication of how you have managed debt and whether you have consistently met your repayment obligations.

A strong credit profile does not guarantee the lowest possible interest rate, but it can improve your chances of receiving a more competitive offer. A poor repayment history, accounts in arrears or excessive reliance on short-term credit may result in a higher rate or an unsuccessful application.

Start preparing several months before you intend to buy. Pay all accounts on time, bring overdue accounts up to date and avoid using all the credit available on your cards and revolving accounts.

You should also check your credit report for inaccurate information. An old account incorrectly shown as unpaid, for example, could negatively affect the way a lender assesses your application. Addressing these issues before applying is easier than trying to resolve them while an offer to purchase is approaching its finance deadline.

Avoid closing every credit account simply to improve your score. A well-managed credit account can help demonstrate responsible repayment behaviour. The aim is to use credit carefully, not to make sudden changes without understanding how they could affect your profile.

Reduce your existing debt

Banks do not assess affordability based on salary alone. They look at how much of your income is already committed to debt and regular household expenses.

Vehicle finance, personal loans, credit cards, retail accounts and other monthly repayments all reduce the amount available for a home loan. Even when your income appears high enough, substantial existing commitments can limit the bond amount for which you qualify or affect the interest rate offered.

Reducing expensive short-term debt before applying may improve both your affordability and your overall risk profile. Focus particularly on accounts with high balances or large monthly instalments. It is also sensible to avoid taking on unnecessary new debt shortly before or during your home loan application. Financing a vehicle, increasing a credit limit or opening several new accounts could change your affordability calculation and prompt the bank to reassess its decision.

Get pre-qualified before house hunting

Pre-qualification gives you an early indication of the home loan amount you may be able to afford based on your income, expenses and credit profile.

It is not a guarantee that a bank will approve your final application, but it can help identify possible obstacles before you make an offer on a property. You may discover that you need to reduce debt, improve your credit record, save a larger deposit or adjust your target price range.

Pre-qualification also helps you search for homes within a realistic budget. This reduces the risk of falling in love with a property and only later discovering that the monthly repayment would place too much pressure on your finances. Remember that the maximum amount a bank is prepared to lend is not necessarily the amount you should spend. Your own budget should leave room for municipal rates, levies, insurance, maintenance, future interest-rate changes and unexpected expenses.

A buyer who applies well within their financial limits may also present a more comfortable risk profile than someone attempting to borrow at the absolute limit of their affordability.

Save a deposit where possible

Qualifying for a 100% home loan can make it possible to buy without paying a deposit, but contributing some of your own money may strengthen your application.

A deposit reduces the amount you need to borrow and lowers the bank’s loan-to-value ratio. In simple terms, the bank is financing a smaller proportion of the property’s purchase price, which can reduce its risk. This may help you secure a more favourable interest rate, although a deposit does not guarantee a particular rate. The bank will still assess your credit history, affordability and the overall application.

A deposit also lowers your monthly repayment and the total interest charged over the loan term. Even if you cannot save 10% or 20% of the purchase price, a smaller contribution may still make a meaningful difference. Do not, however, use every rand of your savings as a deposit. Buyers also need to budget for transfer and bond-registration costs, moving expenses, insurance and the inevitable costs that arise after taking ownership of a home.

Related reading Want to buy a home? Here's how to save for your deposit faster A larger deposit can reduce the amount you need to borrow, improve your chances of securing a more competitive home loan interest rate and lower your monthly repayments. Discover practical ways to grow your deposit faster and get one step closer to homeownership. Read the article →

Compare offers from more than one bank

Many buyers approach the bank where they hold their transactional account and accept the first home loan offer they receive. While your existing bank may offer a competitive deal, there is no certainty that it will provide the best rate.

Banks assess applications differently. They may also have different lending targets, pricing models and appetites for particular customer profiles or property types. Comparing several offers allows you to assess the approved loan amount, interest rate and other lending conditions. A slightly lower rate can produce meaningful savings, but the full offer should be considered rather than focusing on one figure alone.

Check whether the loan is approved for the full purchase price, whether a deposit is required and whether any special conditions must be met. Also confirm the loan term, initiation costs and whether the quoted rate is variable or fixed for a particular period. The most useful comparison is between offers based on the same loan amount, deposit and repayment term.

Consider using a bond originator

A bond originator can submit your home loan application to several participating banks and help compare the responses. Instead of completing separate applications for each lender, you provide the required information and supporting documents once. The originator can then manage the application process, follow up with lenders and, where possible, request an improved rate.

This can be particularly helpful because receiving an approval does not always mean the process is finished. A bank may reconsider its pricing when presented with a more competitive offer from another lender.

Using a bond originator does not guarantee approval or a particular interest rate. The final decision remains with the bank and will depend on your financial profile, the property and the lender’s criteria. However, comparing multiple banks gives you a better view of the options available than relying on a single application.

Submit a complete and accurate application

An incomplete home loan application can lead to delays and repeated requests for information. It may also make it more difficult for the bank to assess your financial position clearly.

Prepare your supporting documents in advance. Depending on your employment and income structure, these may include proof of identity, recent payslips, bank statements and information about your monthly income and expenses. Self-employed applicants will generally need additional financial documentation.

Make sure the information in your application matches the supporting records. Undisclosed debt, inconsistent income figures or unexplained transactions can raise questions and slow the process.

Be honest about your financial commitments. Banks perform affordability and credit checks, so leaving out an account does not make it disappear. A clear, accurate application allows the lender to assess your position properly from the beginning.

Maintain financial stability while the application is underway

Home loan approval is not always a single, irreversible event. A bank may conduct further checks before the bond is registered, particularly if the process takes several weeks or your circumstances change.

Try to maintain stable financial behaviour throughout the application and registration period. Continue paying accounts on time and avoid taking out large new loans or making unexplained transfers between accounts.

Changing jobs is not automatically a problem, but it may affect the assessment if you enter a probation period, move to a less stable income structure or cannot immediately provide the required proof of earnings. Where possible, avoid major employment or financial changes until the home loan process has been completed.

You should also resist the urge to buy furniture and appliances on credit before moving in. Taking on new repayments before registration could place pressure on your affordability and your future household budget.

Should you choose a fixed or variable interest rate?

Most home loans in South Africa are granted at a variable interest rate. This means the rate and monthly repayment can rise or fall when the lending benchmark changes.

Some banks may allow borrowers to fix their interest rate for a limited period. A fixed rate can provide more repayment certainty during that time, but it may initially be higher than the available variable rate. You may also miss out on savings if variable rates decrease while your rate is fixed.

The better option depends on your budget, appetite for risk and the terms offered by the bank. A buyer with very little room in their monthly budget may value predictability, while another may prefer the potential benefit of falling rates.

Before choosing, ask the lender to explain how long the rate will be fixed, what happens when the fixed period ends and whether any restrictions or costs apply.

Common mistakes that can weaken your application

Applying before checking your credit profile is one of the most avoidable mistakes. Buyers also undermine their position by taking on new debt, missing payments or applying for a property that leaves no room in their monthly budget.

Another common mistake is assuming loyalty to a particular bank will automatically produce the best deal. Your existing banking relationship may help the lender understand your financial behaviour, but it should not prevent you from comparing alternatives.

Buyers should also avoid focusing only on whether the loan is approved. The interest rate, deposit requirement, loan term and total repayment all affect the true cost of the finance.

Finally, do not rush into accepting an offer without reading the conditions. A lower rate may be attractive, but you need to understand the complete home loan agreement and confirm that you can meet every requirement.

Can you improve your rate after your bond is registered?

Securing a competitive rate at the beginning is ideal, but your options do not necessarily end once the bond is registered.

You may be able to approach your bank later and request a rate review, particularly if your financial profile has improved or the property’s value has increased. The bank is not obliged to reduce the rate, and its decision will depend on its policies and assessment at the time.

Moving the bond to another bank is another possibility, but refinancing can involve cancellation, legal and registration costs. Any potential interest saving should be weighed against these expenses before making a decision.

Even if your rate remains unchanged, paying a little extra into the bond can reduce the outstanding balance and the total interest charged. Where the loan allows access to additional funds, an access bond may also give you flexibility, although withdrawing the extra money will reduce the interest-saving benefit.

Prepare early for a more competitive offer

Getting a good home loan interest rate starts well before you submit an application. Build a consistent repayment history, reduce unnecessary debt, check your credit report and save towards a deposit where possible. Get pre-qualified so you understand your realistic budget, and compare offers rather than assuming the first approval is the best available.

The interest rate is only one part of buying a home, but it can shape your finances for many years. Taking the time to prepare and compare your options could lower your monthly repayment and save a substantial amount over the life of the loan.