Qualifying for a home loan may feel like clearing a hurdle, but potential new homeowners need to actively take the next step to negotiate a competitive interest rate with the major banks.
The last few South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) announcements have left interest rates unchanged at 11.75% - a 10 year high as interest rates remain extremely high.
The high interest rates may deter people from purchasing a home especially if they need a home loan.
Home loans are typically issued in accordance with the prime lending rate, which can change when the interest rate is adjusted.
Qualifying for a loan can feel like overcoming a huge hurdle, which means many don’t take the next step of negotiating their interest rate.
Ayanda Ndimande, the head of Business Development at Sanlam Retail Credit, has encouraged people to do their homework so they can negotiate their home loan with confidence and feel in control over the process.
How to negotiate a better rate on a loan
Ndimande shares two things people need to negotiate a better rate:
– A good credit score
Your credit score is a reflection of your accumulated history of dealing with debt. In order to get a loan, your credit score needs to be strong.
Every person has the right to a free credit report every 12 months that they can request from an accredited credit bureau.
– Know your affordability
It’s critical to do your own research by checking your own affordability. You can do this by looking at previous bank statements and consider what you’d have to give up to afford a R2,000 monthly loan repayment, for example.
Ask yourself some important questions
To negotiate from a strong position it is vital to understand where you are financially. You can do this by asking yourself the following questions:
1. What’s the opportunity cost of having this loan? What will it cost you in terms of your lifestyle and financial goals?
2. Think about the fluidity of the economy. If petrol and food prices continue to increase, for example, can you afford these expenses and the loan?
3. Do you need the money now, or could you save over the next few months/years, to be able to pay more upfront, so your repayment instalments are lower?
4. How will the swinging repo rate impact you? Can you afford to potentially pay more, if the rate increases?
Should you ‘shop’ around for comparative quotes?
Yes, you should shop around for quotes, but asking for quotes from more than three lenders in a three-month cycle could harm your credit score.
According to Ndimande, people need to remember that all registered lenders are regulated by the National Credit Regulator, so quotes should not differ too much.
Think carefully about a fixed interest rate
Considering the high interest rates, many people may be tempted to renegotiate the terms of their home loans and ask for a fixed interest rate.
Andrea Tucker, director of MortgageMe said that a fixed interest rate will remain the same for a specific and agreed-upon period of time.
“You are likely to get a higher fixed interest rate than you’re currently paying – so, you may go from 10 percent to 12 percent, for example but it’s important to remember that interest rates do go down. If the interest rate eventually drops to 10 percent, you will still be paying a fixed rate of 12 percent,” Ndimande said.
“It’s unlikely that you will be able to change this, so it’s something to be aware of.”
Finally, remember that when you are applying for a loan you need to ensure that it is from a registered and trusted credit provider.
Chantel Pieterse, Head of Operations at Unifi South Africa said that when you need to take out a loan, make sure it’s from a registered and trusted credit provider, and also make sure you are not burdened with hidden costs or fees.
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