Life could be easier for agents if buyers secured 100 percent home loans, but this might not be a good thing for homebuyers.
The lower minimum monthly repayment on a lower rate loan may just put the homeowner in a position where he is able to pay the loan off faster and save even more interest, he says.
According to Rudi Botha, chief executive officer of BetterBond, lenders seldom grant interest rate concessions on 100 percent loans.
Even a 1 percent concession on the interest rate that homebuyers are charged can have a major effect on their financial future, especially when taken over the 20-year lifespan of most mortgages.
Botha says on a R1 million bond, for example, an interest rate of 8 percent instead of the current 9 percent standard rate would first of all automatically translate into interest savings of more than R151 886 over 20 years.
This is money that could come in handy when paying for a child’s tertiary education, he says.
A lower interest rate generally makes it easier for buyers to obtain a home loan to begin with, he notes.
In the example above, the minimum monthly repayment would be about R8 400 instead of R9 000, which means that the buyer would probably need to earn about R2 000 a month less to qualify for the loan.
Botha points out that this might make all the difference between being able to buy right away and having to wait another year for a salary increase – by which time property prices will very likely have gone up too.
The lower minimum monthly repayment on a lower rate loan may just put the homeowner in a position where he is able to pay the loan off faster and save even more interest, he says.
“The buyer who is able to pay an extra R200 a month on the 8 percent loan, for example, will pay off the loan a whole year early and shave off another R65 000 in interests.”
However, the fact is that there is really only one way these days that most buyers can even hope to qualify for a rate concession, and that is to pay the biggest deposit possible.
He says telling buyers this does not make estate agents or originators very popular, but once buyers see the very substantial benefits they stand to gain, they often start to think about deposits differently.
“At the very least, they are likely to be in a better position to obtain a bond.
The latest BetterBond statistics indicate that about 60 percent of loans approved are going to borrowers with a deposit and that the average deposit required is lower than last year, he adds.
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