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Negotiating your home loan rate

Don't be afraid to negotiate your home loan rate

Don’t be afraid to negotiate your home loan rate 

Negotiating a loan at even one percentage point less than the prime lending rate can save borrowers a substantial sum over the life of the bond.

In the current economic climate, however, many borrowers – and especially first-time buyers – are just so grateful to qualify for a home loan that they don’t want to rock the boat.

Qualified borrowers should keep in mind, that the reason home loans are hard to come by is that many prospective borrowers don’t make the cut in terms of the stricter lending criteria stipulated in the National Credit Act. “Banks therefore have to turn applicants with risky credit histories down to protect their own interests. 

This means that if you do qualify for a bond in terms of the Act, you are a sought-after prospect for banks and you should use this opportunity to your advantage by negotiating the best possible terms.

The repayments on a 20-year bond of, say, R1m at an interest rate of 10% will cost the borrower R9 650 a month. Negotiating the rate down by one percentage point would save the borrower about R650 per month. “That’s R7 800 a year or R156 000 over the life of the bond. Put another way, a saving of R156 000 represents more than 15% of the initial purchase price.” 

It is advisable that homeowners who negotiate lower rates to consider paying the resulting savings into their bond accounts. The total saving on interest in the example above would come to more than R220 000 if the bondholder paid the R650 ‘saving’ into his bond account each month. On top of that, he would shorten the life of the bond to about 16 years.

Meanwhile first-time buyers who are unsure of their ground when it comes to bargaining with banks are especially advised to make use of the services of mortgage originators, who will source the best home loan package available to each borrower at no charge.