Steps that may help home buyers qualify for a better interest rate

Johannesburg – South Africans this week got a rude awakening when the South African Reserve Bank raised the prime lending rate to 7.25%, ending months of record-low interest rates.

The decision will see consumers pay a bit more to service their debts. For example, the prime interest rate affects home loan interest rates, which determine how much you are going to have to pay the bank.

The central bank determines the repo rate (repurchase rate) – the interest at which it lends to banks. This then determines the prime interest rate, and in turn the rate at which banks will lend to consumers. For example, if the prime interest rate is 7% and the bank grants you an 11% interest rate, your rate is prime plus 4%.

If the prime interest rate drops to 6%, your rate will still be prime plus 4%, meaning your rate now drops to 10%. Carl Coetzee, the CEO of BetterBond, said the increase in interest rates last Thursday was not caused for alarm.

“The groundwork has already been laid for consolidation of the residential property market and this slight shift to 3.75% should not hamper the rebound, which we have seen over the past year.

“After an initial surge last year in first home buyer activity, we are now seeing renewed interest from buyers at the upper end of the market as they make the most of the low-interest rates. Bond applications for homes of more than R3-million have increased by almost 48%, now accounting for just over 6% of all Better Bond’s applications,” he said.

CEO of RE/MAX of Southern Africa Adrian Goslett said that tough times lay ahead for homeowners who had not left room in their budgets for this increase.

“Year-to-date September, our reported sales totals are up by 45% while property registrations are up 75%.

“This hyperactivity is largely owing to the low-interest rates as well as a change in lifestyle brought about by the pandemic,” said Goslett.

According to Mortgage Market, there are ways to get a good interest rate when purchasing a property:

Step 1: Check your credit score When banks consider your home loan application, one of the things they look at is the credit score. This indicates your previous credit behaviour and how like ly you are to pay the loan back.

Step 2: Improve your credit score If your credit score is sitting below 600, then you’re going to have to improve your rating before applying for a home loan. This can be done by ensuring all outstanding debt is paid and that any installments are paid on time.

Step 3: Get pre-approval for a home loan By applying for bond pre-approval, you’re showing any potential lenders, estate agents and property sellers that you’re a serious buyer with a higher possibility of getting a bond. This will expire after three months, and then you can reapply if needed.

Step 4: Calculate the repayments Using a bond calculator, find out exactly how much you are likely to pay each month so that you can budget accordingly. But you need to remember that it’s more than just the bond repayments, you’ll also have to factor in other expenses like transfer costs, bond registration fees, rates and levies, as well as maintenance and insurance costs.

Step 5: Work with a bond originator Rather than approaching the banks yourself, you can outsource the legwork to a bond originator as a way to get a home loan at the best rate. This allows you to get the best interest rate possible.

Step 6: Understand the application process A reputable bond originator will not only find you a great rate but actually talk you through the entire process as well. You’ll need to know the requirements for a home loan, the time it will likely take, as well as any costs involved. This way, your expectations are managed, and the experience is that much more palatable.

Step 7: Consider a co-signatory In the event that you’re battling to secure a home loan, then you might have to consider a co-signatory on the bond who can shoulder the load. This person will have to have a good credit score or higher income with a good debt-to-income ratio.

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