Interest rates may be on the rise but if you are thinking of buying a new home, working with a bond originator, who will negotiate with the banks to secure you a lower interest rate, will significantly reduce the amount you have to pay on your bond each month. “This saving on your interest rate, called a rate concession, will have a noticeable impact on your monthly bond repayments,” says Carl Coetzee, CEO of BetterBond.
Currently BetterBond’s average interest rate concession when applying to four banks is 0.61%, says Coetzee. This means that the interest payable on your bond could be 0.61% below what the banks would have offered if you applied to one bank only. “For example, on a R2 million bond payable over 20 years at prime, an interest rate concession of 0.61% means a monthly saving of almost R740. So instead of paying R16 112 each month, you would pay R15 374. Over the 20-year loan period, this amounts to a saving of more than R177 000,” says Coetzee.
The following table shows how your monthly bond repayment is reduced by working with a bond originator who applies to more than one bank, at no cost, on your behalf. This calculation is based on a R2 million bond, and shows what you can save if you apply to more than one bank using the services of a bond originator.
This table illustrates how a rate concession of prime minus 0.61% can reduce the monthly bond repayment on various bond amounts, at the current prime lending rate of 7.5%. It also shows how a rate increase this week to 7.75% could affect your monthly bond repayments, and how a rate concession would reduce these payments.
“Even on a R1 million home for example, the savings with a rate concession secured by your bond originator will be worthwhile. By paying an interest rate of prime minus 0.61%, the interest rate for your monthly bond repayment will be 6.89%. This means that instead of paying R8 056 each month, you would pay R369 less. Over the typical 20-year loan repayment period, this rate concession will amount to a saving of R88 520 in interest.
“Not only does applying to more than one bank help to secure a more favourable interest rate, it also improves your chances of bond approval. In fact, BetterBond’s data shows that a client who gets a pre-approval with BetterBond has a 90% chance of getting a bond,” says Coetzee.
“With electricity tariff increases and fuel price hikes, it’s becoming even more important to budget and save costs where possible. If you are thinking of buying a home this year, work with a bond originator who can secure a competitive interest rate that will help reduce your monthly bond payments,” concludes Coetzee. “An interest rate concession will go a long way to making your ideal home more affordable.”