Home loans are currently hard to come by – but that should not prevent qualified borrowers from negotiating for a better interest rate.

Negotiating a loan at even one percentage point less than the prime lending rate can save borrowers a substantial sum over the life of the bond, advises Martin Schultheiss, CEO of the Harcourts Africa property group.

“In the current economic climate, however, many borrowers – and especially first-time buyers – are just so grateful to qualify for a home loan that they don’t want to rock the boat.”

Qualified borrowers should keep in mind, he says, that the reason home loans are hard to come by is that many prospective borrowers don’t make the cut in terms of the stricter lending criteria stipulated in the National Credit Act (NCA). “Banks therefore have to turn applicants with risky credit histories down to protect their own interests.

“This means that if you do qualify for a bond in terms of the Act, you are a sought-after prospect for banks and you should use this opportunity to your advantage by negotiating the best possible terms.”

Schultheiss explains that the repayments on a 20-year bond of R1m at an interest rate of 10% will cost the borrower R9,650 a month. Negotiating the rate down by one percentage point would save the borrower about R650 per month. “That’s R7,800 a year or R156k over the life of the bond. Put another way, a saving of R156k represents more than 15% of the initial purchase price.”

He further advises homeowners who negotiate lower rates to consider paying the resulting savings into their bond accounts. “The total saving on interest in the example above would come to more than R220k if the bondholder paid the R650 ‘saving’ into his bond account each month. On top of that, he would shorten the life of the bond to about 16 years.”

Meanwhile, first-time buyers who are unsure of their ground when it comes to bargaining with banks are especially advised to make use of the services of mortgage originators, who will source the best home loan package available to each borrower at no charge.

Praven Subbramoney, head of FNB Home Loans Pricing, Profitability and Capital Management, says banks are very open to negotiation, some more so than others. “At FNB Home Loans we have a dedicated team of individuals that specialise in client interest rate negotiations. In most cases we are able to find a compromise that is beneficial to both customer and the bank.

“Customers are also encouraged to review their interest rate on an annual basis. Depending on market and risk conditions, customers may actually realise a reduction in their interest rates.

In terms of the type of leeway banks are most likely to give for lowering the rate in the current economic scenario, Subbramoney says this is highly dependent on the risk associated with the deal. “It may vary depending on the breadth of relationship that the individual may hold with the bank.”

He says approximately one in five customers choose to negotiate their bond interest rate, but it is highly likely that the remaining four also negotiate their interest rate, but only with the preferred institute that they are looking to place their bond with. “In short, most individuals choose to negotiate their interest rate at one institute or another, however, individual banks are not able to distinguish this.” – Eugene Brink

Readers' Comments Have a comment about this article? Email us now.

Not sure if mortgage originators are out there for the best rate and best deal for individuals, irrespective as first time or standing clients. We have recently being negotiating a bond and associated interest rates with a mortgage originator and have taken upon ourselves to approach financial intuition not familiar with our history other than documentation requested. Investec one - ABSA nil, and I might add been with ABSA for almost 30 years.

Thx for the article and the advice. – Tony Smith