The next salvo in the battle for your home loan has been fired as home loan
lenders compete for your business by offering lower interest rates.
NBS is the latest bank to offer a cheaper loan, the NBS Superate, at an
interest rate of 13,1 percent a year, well below the current basic home
loan rate of 15,5 percent. This follows on the heels of First National
Bank`s (FNB) recently launched SmartBond at 13,3 percent. SA Home Loans is
also offering loans at 13,3 percent.
The stranglehold over traditional home loans was broken in February when
mortgage origination company SA Home Loans entered the market, offering
loans up to two percent lower than general home loan rates.
SA Home Loans is able to offer these discounted interest rates because it
funds the loans via a process called securitisation. This involves pooling
parcels of loans and selling them to institutions and pension funds who
earn the interest that you and all the other borrowers in a pool pay every
month.
Both FNB and SA Home Loans based their interest rates on short-term money
market rates. SA Home Loans uses the Johannesburg Interbank Lending Rate
and FNB uses the Bankers` Acceptance rate. These are wholesale rates at
which banks borrow money from one another. FNB and SA Home Loans charge you
a fixed amount of 2,1 percent on top of the current Jibar rate.
Loans based on these rates change daily, but you pay the same rate for
three months.
Noel Young, divisional director mortgage lending at NBS, says the Superate
interest rate is linked to a basket of short-term money market rates which
includes the Bank Acceptance rate. The rate is not fixed at a certain
percentage above the money market rates, but will depend on the cost of
funding to the bank. The rate will have to remain competitive with SA Home
Loans and FNB, he says.
Like the rates offered by SA Home Loans and FNB, NBS`s new bond rate is
also reviewed on a quarterly basis. But the bank does not intend to
securitise these loans.
The advantage for borrowers, says Young, is increased flexibility. In
securitised products the number and the frequency of withdrawals you can
make are often limited. But the NBS product offers the same withdrawal
benefits as an ordinary loan, where you can withdraw money as often as you
like provided you don`t exceed your maximum loan amount. Generally banks
limit withdrawals from your loan via ATMs to two a month, but you can apply
for further withdrawals.
With NBS`s new loan you will be able to borrow up to 70 percent of the
property`s value once you have repaid a portion of your loan. Should you
require more money, you can choose to transfer the loan to one of the other
NBS loan products which allows for a higher risk exposure.
The new loan is aimed primarily at new borrowers, but Young says existing
borrowers can apply provided they meet the loan criteria. He adds that NBS
borrowers who are locked into a fixed or step down product will not be
penalised for breaking their contracts to move to the new loan product.
A comparison of the three products shows:
* Minimum borrowing amounts are R200 000 at FNB and R100 000 at S A Home Loans;
* NBS and FNB have strict requirements about where your property is situated;
* In all cases you must have invested 30 percent in cash in your property;
* All three institutions will lend you only 70 percent of the value of your
property;
* FNB and SA Home Loans discount the bond registration costs you would
usually have to pay. At NBS, the standard fees are charged; and
* At SA Home Loans you can make two withdrawals a year with a minimum
amount of R20 000 each time; at FNB you can withdraw four times a year, at
least R1 000 each time; and at NBS you can withdraw as many times as you
wish.
The less risk you pose to the bank the better rate you will get, says Young.
By insisting that you have a 30 percent stake in your property banks are
lowering their risk because they know you will think carefully before
reneging on your home loan.
If you want to make use of the lower interest loans being offered, you
should consider buying a cheaper property or saving a 30 percent deposit
before you buy.