Monday, 16 April 2007

SA Homeloans - Who, Why, What?


Well, my whole idea when starting this BLOG was to write about the different homeloan companies, banks and property agencies. Talk about those who are bullshitting, those who are cheating people out of money but at the same time giving those credit when credit was due. SA Homeloans, you're going to be the first of the home loan companies. The reason I've chosen you is:

1. You're always in the public eye
2. You're one of the few "controversial" companies in South Africa
3. There's loads of questions and queries I have...

I hope that someone at SA Home Loans reads this and helps shed some light on questions that not only I have but that many people have asked me to post up on this BLOG this evening. As a matter of fact, they're all sitting here behind me ;-)

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SA Homeloans JIBAR rate

SA Homeloans have a great reputation for having some of the lowest interest rates out
there... That's a given and it's a known fact amongst mortgage originators. What most people don't know is how they can offer such low rates.

SA Homeloans differ from your normal mortgage origination companies. Instead of relying on the interest rates that the bank offer most originators, SA Homeloans's funding comes from something called the JIBAR rate. The JIBAR rate is the 3 month interbank agreed rate. This is the average interest rate at which banks buy and sell money. The average is calculated by SAFEX on the securities exchange as the average rate quoted by the various major banks in South Africa. This rate normally sits at around 9.1%. What this means, is that SA Homeloans are able to buy money at a rate of 9.1% thereby allowing them to offer people loans and mortgages at rates allot lower than those of the banks. In actual fact they should (and I stand to be corrected) be able to offer rates at 2% lower than the banks can offer you.


SA Homeloans - FACTS!

1. They only offer home loans. They do not offer further loans or further advances on your additional home loan.
2. Loan amount (Loan To Value Ratio) may not exceed 95% of your property value.
3. They have loyalty incentives where they offer you a 0.6% drop in your bond after being with them for 2 years (Kind of shows you how much money they're making)
4. They offer a 50% discount on legal fees


WHAT YOU DIDN'T KNOW ABOUT SA HOMELOANS


Well firstly because Homeloans SA rely on something called the JIBAR rate, they are at the hands of the securities exchange. This rate changes every 3 months. So let's say for the first 3 months you're offered a rate of 10% (not fixed). 3 months later they purchase more money but the JIBAR rate has jumped up by 0.3%. Automatically and you won't even know this until you get you bond statements, you're monthly repayments jump up by 0.3%. For those people, who are a but short of cash, and probably thought this sounded like a brilliant idea and an awesome rate, if you're living on the edge every month and you can barely make you're bond repayments, 0.3% increase in your repayments for the next 3 months WILL HURT YOU! Should this rate go up again in 3 months time, you're looking at a 0.6% increase. It's their way of making money and it's something that they don't explain to clients when they sign up... It's basically the "read between the lines" portion of their TV Ads. Don't get me wrong, things swing both ways, but this will catch you at some point or another...


SA HOMELOANS INTEREST ONLY PAYMENT OPTION


This ladies an gentleman is the biggest NO NO in the history of mortage origination. By offering people the option of only paying the interest portion of your bond, they are automatically putting you into more debt. IF you EVER have any extra money at the end of the month, the bond is the account you want to put that money into... They even give you an example; According to SA Homeloans on a R500 000 bond at an interest rate of 10% your monthly repayments will increase by R360 every month. This is ontop of your monthly repayments that you owe. Work that out over 20 years. Plus, just imagine the JIBAR rate increases by 0.6% over the next year, that's going to hurt you...

Don't get me wrong people, this company is great and they do offer awesome rates. They also have a winning formula which is what makes them one of the most successful mortgage origination companies in South Africa, but I believe people need to weigh up their options and just be careful before falling for the "WE CAN GIVE YOU 2.5% BELOW PRIME GUARANTEED".

Related SA Homeloans Interest Only Articles:

Interest only pitfalls

Load of Love
WIZARDMAN Out!

More SA Home Loans news:

- http://www.persfin.co.za/index.php?fSectionId=592&fArticleId=3815478

Private Property

14 comments:

Gino said...

A very informative piece wizardman. Your blog is becoming a good resource for Mortgage News and Tips.

I wrote an article previously about the SA HomeLoans Interest Only Mortgage.

This type of homeloan is not suited for everyone and I believe most homeowners would be better off applying for an Access Bond.

WizardMan said...

Yes Gino that's 100% correct. Access Bonds are the way to go. Thanks for the nice comment mate.

Kerry-Anne said...

Really good info - this is the kind of thing that consumers need to be aware of before signing on the dotted line, so that they can make informed choices.

Oscar Reitsma said...

Great article... I've always been a bit weary of SA homeloans, because I wasn't sure how they worked. Thanks for bringing it to my attention.

Anonymous said...

Hi wizardman I agree with Gino my SA homeloans deal worked out to be an average of about -1.25% below prime on average and when I signed up I had the MAGIC -2% A bit of crock thanks Marinos

Anonymous said...

Thanks I agree SA Homeloans sucks

Neil said...

I had the same tunnel vision with SA HomeLoans. My issue with SA Homeloans was that everytime I started asking questions they lady at SA Homeloans tried to fool me with some or other graph that didnt even had the proper axis' labbelled.

Luckily the friendly bond originator from Mortgage SA convinced me other wise! He organized a pretty sweet bond from Absa for a fixed rate of 10.5%, where the interest is fixed for a 5 year period. Really good if you see the way the market is moving.

Anonymous said...

Very good post, with detailed information. You can also check out www.ramji.in if you are looking for Real Estate Consultants in Delhi who can help you in land investment in India and to sell investment property.

Anonymous said...

A few comments
1. SA Homeloans does offer both further loans and readvances
2. You can have a loan of up to 100% Loan to Value (but they do not offer anything above 100% which some other lenders are now doing)
3. The fee structure has recently changed due to reduirements of the National Credit Act. I am not sure exactly how it works out but there is now an initiation fee (which there didn't use to be) becuase the NCA doesn't provide for the charging of legal fees incurred.
4. Jibar over the years has moved much closer to prime than it used to be, so the discounts possible compared to banks previously are not always as apparent.
5. There are fixed rates available, as well as a capped rate (basically, you pay insurance to hold your variable rate to a fixed level for a fixed period). Fixed rates are higher than the prevailing variable rate, as they are at any lending institution as you are paying for this security. Note: the SA Home Loans fixed rate will actually step down if variable rates drop, and not step up again. So in a market when rates are dropping, you don't lose out, even if you are paying a 'premium' on the rate. Not sure if other institutions do this, I suppose they probably do.
6. Interest only could be useful in investment situations (buy to let where rentals cover the repayments) or where you don't intent to pay down the loan of the 20 year term e.g. investment buying where you plan to sell in 2 years. The average person who is paying of their house and retire in it one day wouldn't want this type of loan!

WizardMan said...

Anonymous,

Thanks for the great post. You are absolutely correct with everything you have said...

Please note that the initiation fee, that is included in your bond registration and transfer costs. This was always in place with bond originators that did their financing through the banks, I did not know this was something new with SA HomeLoans

Anonymous said...

I am sa homeloan client and can say I am not satisfied with them. They do not tell you all the things and afterwards say something else. With the interest rates cuts they only amend your interest rates after 3 months. This they did not tell you. My bond was registered for R150 000 more than my loan. When I want to apply for extra funds they informed me that they need to evaluate my house again. My evaluation of my house was for R200 000 more than it was registered for at the attorneys. When I queried them they just said they need to evaluate my home again before they will grant a further advance and I have to pay for the evaluation fee. If I can choose again, I will not choose sa homeloans again. They have hidden clauses which they never tell you about.

irene said...

I urgently need the name and e-mail adres of either the CEO or a Director of SAHL. I urgently need a complaint to be solved and do not get any satisfaction from their branche manager or Headoffice staff
If anyone can assist me of the above, please send the detail to
rimelju@telkomsa.net
Thank You

Ravi said...

Property in India especially in Delhi NCR region with residential and commercial property in Delhi Details.

Anonymous said...

Hi

As per a previouse comment, I too am finding no joy or success speaking with the service desk. I am furstrated and urgenly would like to speake with the CEO or an senior executive, before I take further action.

So, if anyone had this information, I would greatly appreciate it if you would make it available.