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Spreadsheet Ranger

How to get the best home loan interest rate

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Posted (edited)

I am in the process of and looking to; buy a property. I see current interest rate on most of the bond calculators are on 10% which is probably the prime lending rate?

How likely are banks to give you a bond with interest below the prime lending rate, assuming you have an excellent credit score? (Mine is 666 currently).

 

Would it have any affect if I go to FNB and tell them if they give me a lower than prime interest rate then I will move all my credit cards to them from the other banks?

 

I think what I am trying to get at is how do you negotiate the interest rate with a bank as a first time home buyer? 

Edited by Spreadsheet Ranger

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Posted (edited)

From personal experience and the experiences of several of my friends, SA Home Loans tends to be much more flexible and willing to negotiate interest rates than the banks.

 

Recently, a friend of mine called them and offered to move her Nedbank home loan to them if they offered a better interest rate. She was paying 12% at Nedbank and they dropped her interest rate to 10.2% and covered the bond costs.

 

And when I was buying, SA Home loans made me an offer of prime rate. I asked them if they would drop the lending rate by 0.25% and they said they would do so if I increased my deposit by a certain amount, which I did. So, after approval in principle, they certainly are willing to negotiate interest rates depending of your, and the property's, risk profile, as well as the deposit you're prepared to put down.

 

Also, I've had my bond with them for almost seven years and I'm very happy with their service. You really should give them a call...

 

 

Edited by SaurusDNA
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FWIW: I've heard that the best time to renegotiate your interest rate is after two years of bond repayments.

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Posted (edited)

Thanks for the responses so far guys. I see SA Home loans offers a 30 year bond.

 

Are there any immediate dangers to opt for a 30 year instead of a 20 assuming the purchase price is the upper limit of the 20 year bond affordability?

I know you'd be paying a ton more interest on the 30 year bond than on the 20 year bond, but I would increase my bond payments which should counter that?

 

I also see SA Home Loans have something they call an "Edge Home Loan" which allows you to structure a bond in such a manner that you pay the interest only for the first 36 months - this looks appealing should allow me to qualify for more working under the assumption that my earnings in 3 years would be able to match the capital repayment. Am I understanding that loan correctly? 

 

Are there any pitfalls to paying off the interest only first on the home loan through this product?

Edited by Spreadsheet Ranger

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What would be the point of opting for 30 years instead of 20 if you're planning to pay more anyway?


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Posted (edited)

SInce the first few years' repayments is mainly all interest and no capital, the difference in monthly repayments between a 20 year loan and a 30 year loan is only around 8.3% difference. It would be better to buy a house that is 8.3% cheaper and pay the same payment you would over 20 years.

Edited by SaurusDNA

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1 hour ago, Bandit said:

What would be the point of opting for 30 years instead of 20 if you're planning to pay more anyway?


Here a 30 year loan gives me roughly 200k more to offer, in Cape Town that 200k is the difference between a semi safe apartment and delft. 

My idea was to opt for the 30 year (giving me access to more money to buy a semi good place), but then through proper budgeting pay an extra 10% into the 30 year bond every month.

 

Not sure if that approach is as wise as I think it is in my head?

 

Essentially with 20 year bond, I can't get the place (roughly 100k short), 30 year bond I can easily buy the place.

 

In an ideal world I'd like to save up for that 100k shortfall, but the reality is that property prices are rising faster than my saving ability through my salary, so I will always play catch up.


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Guess that makes sense. Comes down to affordability. I reckon 30 years is fine as long as you can meet more than the repayment right now and fairly sure you can up it even more in the coming years.

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That will be the risk I take now - I am banking on it that I will earn more in 5 years than I do now to enable me to push 20% more into my bond in year 6 on wards.

 

I will continue to look for places perhaps something else comes up before my lease agreement ends. Perhaps some middle ground like a a 23 year lease through SA home loans.


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