Tuesday, 5 October 2010
Home Loans Interest rate WARS or WHO..S! - Pimping the ride.
The lowest interest rate in more than 30 years and since August 1979 the same interest rate of 9.5%.
What does this mean for you, the man in the street, where is your benefit and what do you care? The question that is on most people’s minds is can I still get a home loan at -2% below prime? What about comparing interest rates before I buy, as I did before. What about my friend got a great rate from his bank, so why can’t I? Huh!
So what is in it for me? – Will I get a great rate? I think the most important thing to realize is that the prime lending rate is 9.5% - that is low and awesome and possibly near or at the bottom of its cycle.
When rates are low, you pay less for a home loan or any loan BUT you also get less interest when you save.
The definition of interest rates says it all and it’s good to know that even banks lend from each other. Interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender and banks lend and borrow from and to each other using the IBOR rate or Inter-bank lending rate) – So that’s enough technical jargon for today.
When you apply for a loan, the best person to assist you in getting the VERY BEST RATE is your mortgage or bond originator. Why? You may ask.
Well simply, because they can apply for the loan, discuss your application and its chances of success and good rates with internal bank consultants, and do the online sums based on facts and add in their years of professional experience and knowledge – to give you the most accurate and up to date rate probability from ALL the lenders in one go.
This is probably the biggest, time (which IS MONEY) saver for you and secondly give you a fair and decent choice from which to choose the home loan you want.
SO, What About a Great Rate?
Firstly 9.5% is a great rate on its own. If you were investing in to a money saver type plan, would you get 9.5%, not that easily? Most of us only save a few R 100 per month at the most in any case. Speak to your bond originator re access bond management and then you will see the advantage of this rate.
So, ignore the above comment and let’s talk dirty!!
The average good rate today amongst banks varies very little. Today Standard Banks rates are not great, but FNB has better rates. Tomorrow, ABSA will beat Nedbank and Integer and SA Homeloans will offer better deals, BUT, and I mean a BIG BUT, this too shall change.
If you get a rate of 0.25% below prime – that’s great – take it. You might get 0.3% below from the next bank, but then you must check out your initial mortgage setup fee, which varies from bank to bank and also is often added into your home loan over the period of 20 years or so. Then you also have a monthly administration fee which varies and lastly a monthly insurance fee which could also be added into your home loan. Interest on insurance premiums eeeeish!!!
So, forget about great rates today. Win the war, not the battle! Remember, it is difficult to negotiate with those who do not share the same frame of reference.
Work on improving your rate after you have your home loan. It is so much easier and simpler.
WHAT MAKES ME GET A GREAT RATE OR NOT?
This is by no means the only list, but a few tips and pointers:
1. Equity or Loan to Value – A loan of 70% of the property value is a 70% LTV loan will assist you in getting a better rate than a 100% LTV loan – carry some of the risk yourself, the lenders love this.
2. You bank score – each bank rates you as a risk factor, good, medium, bad – do the math! Improve your bank score by being a good banker.
3. Let your mortgage originator do the work. Remember they only get paid on success!
4. Avoid falling for teaser rates! – It’s like looking at a centerfold spread in Playboy, kind of intangible!
5. Build your credit history – get a credit report today and do so annually!
6. Watch variable and fixed rates. If you are comfortable that rates will stay as they are for a while then remain variable. Else consider a fixed rate if you feel movement going up.
7. Save for a deposit.
BUT, MY FRIEND RECEIVED A GREAT RATE FROM THE BANKS RECENTLY, WHY CAN I NOT GET A RATE LIKE THAT?
Sorry, we are not magicians! Soothsayers or spiritualists – We can only tell the truth. Maybe, you should lend from your friend!
It is very simple. Every person is rated by a lender based on, Age, work, education, contribution, risk elements, banking practice, depth of voice resonance and ability to whistle whilst eating an apple! Forget about the rates for now. Get the deal first, do the rates later and most importantly, enjoy your home and count yourself blessed!