01 July 2020

During the property boom years of 2006 and 2007, switching home loans from one bank to another was a fairly common practice among homeowners in South Africa. Now that interest rates are at a historic low, you might be considering switching your home loan to negotiate a better deal so you can spare some much-needed cash during the lockdown.

While you might be able to negotiate a better deal, it doesn’t necessarily mean that you’ll save the money you’re hoping to save during lockdown by switching your home loan, and here’s why…

Hidden clauses cut into the money you want to save

Let’s say you find a bank that is willing to provide a lower interest rate. Before jumping the gun, have a look at any hidden costs that may be linked to certain clauses. For example, they may only offer you a lower interest rate for a certain amount of time and then increase it.

Penalty clauses for switching your home loan

Check the fine print of your current home loan agreement and see what clauses it contains regarding penalties and a notice period. The financial institution will likely have included a penalty clause, which could result in you having to pay 90 days’ interest on your current home loan if cancelled before the stipulated notice period has passed.

The general costs involved in switching your home loan

Apart from the possible penalty, there are also other costs involved in switching your home loan, including attorney fees, a registration cost to register the new home loan, valuation fees and an initial administrative fee. The new bank is likely to cover the legal costs of the switch, but this will be subject to a minimum duration of the new bond. This means that if you decide to sell before the minimum duration period has ended, you’ll have to pay them back for all the legal costs involved in switching your home loan.

Switching your home loan can be a lengthy process

Rome wasn’t built in a day, and similarly switching a home load certainly won’t happen overnight. You’ll have to take the work volumes of the Deeds Office into consideration as the transfer of your new home loan can take between 60 days to three months. Apart from that, you’ll have to provide the new bank with copies of your payslip, bank statements, ID and all other documentation required to assess affordability before the switch can go ahead.

Final advice

Switching your home loan is not a quick and easy way to save money and you should take the time to research this thoroughly before going further. If you’ve started your property search, consult with a bond origination service such as BetterBond so that they can help you save money on your home loan or reach out to a real estate professional who will be able to guide you through the home buying journey.

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