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Getting the best deal on your home loan

Perhaps some of us have been to a mall to buy a few items and soon after purchasing those goods, passed by another shop only to see the very same items at a much lower price! In as much as people react to situations differently, most people would be disappointed to find themselves in this situation.

Indeed, many people are feeling the pinch as the economy treads on the back foot, and each cent saved surely goes a long way. It is important therefore, to make financial decisions that are savvy in order to sail through the troubled waters.

Buying a home through a mortgage bond is no different, it probably counts as one of the top most transactions that shakes one’s monthly budget. It is in one’s best interest to get a better deal before proceeding with purchasing an immovable property. Possibly the best way to do this is to engage the services of a bond originator (such as Phoenix Bonds), who make it their everyday business to secure the best deals on home loans for home buyers.

Phoenix Bonds assists home buyers through a single application process and advancing the application to several lenders in order to “shop” for the better deal. The ultimate advantage of using a bond originator such as Phoenix Bonds is that, the applicant will not need to make several applications to various lenders and further, a bond originator will also be able to negotiate favourable terms and conditions on behalf of the applicant. Some home buyers prefer to make their home loan applications directly to the lender.

Negotiate the best home loan deal

Our view is that it ought to be remembered that most lenders have only one interest in such a transaction, to make profit. Therefore, the home buyer might end up not getting a good deal due to the unequal bargaining power between the parties. A bond originator however, is in a better position to negotiate with the lender.

The Repo Rate was recently revised by the Monetary Policy Committee of the South African Reserve Bank and currently stands at 4.25% whilst the Prime Lending Rate stands at 7.75% as at 21 April 2022. In such situations financial institutions usually seek to cushion themselves by revising the rate of interest at which they borrow to credit consumers, either above the prime rate or below, depending on the credit risk profile of the particular consumer.

To put things into context, repo rate is the rate of interest at which banks borrow money from the Reserve Bank whilst the Prime Lending Rate is the rate of interest at which banks and financial institutions lend credit to credit consumers. As we might be aware, fluctuations in interest rates are occasioned by the economic outlook and market conditions prevailing at the time.

Global economies are doing everything to fend off against the effects of the plummet that was caused by the Covid-19 pandemic as well as recently, the Russia-Ukraine conflict.

Some events that affect market conditions are indeed unpredictable e.g political upheavals, health pandemics etc, and placing immediate measures to contain them usually comes at a huge price tag. The resulting effect may include an abrupt fluctuation in interest rates, thereby biting hard on the pockets of credit consumers. This is why some consumers prefer to have fixed interest rates on their home loans so as to remain unaffected by abrupt changes in the market conditions.

Fixed home loan interest rates

Fixed interest rates are, as apt as it sounds, fixed. This means that a bond that has a fixed interest rate cannot be affected by interest rate fluctuations, the bond repayments will remain the same. However, fixed interest rates are usually higher as the lender seeks to be cushioned from unforeseen future events and remain viable as a business.

Variable home loan interest rates

Variable interest rates are those that are determined by market conditions and consequently, fluctuate accordingly. When the Reserve Bank announces a revision of the repo rate and/or the prime lending rate, banks take these into consideration when assessing credit applications (to lend either below or above the prime lending rate). In consequence, bond repayments may become cheaper or more expensive for different consumers depending on their creditworthiness.

It is advisable for credit consumers to maintain a good credit profile so that when the market performs better, they may benefit from better interest rates as the rates are revised from time to time.

Economic analysts predict that we are likely to see further hikes of interest rates right into 2024, and this information is critical for home buyers when shopping around for home loans.

We specialise in bond origination and bridging finance. We assist home buyers to find mortgage bonds that have favourable terms, thereby saving you time and saving you money.

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The information and material published on this website is provided for general purposes only and does not constitute legal advice. We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter. We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

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