Switching your home loan and accessing equity with a switch

Switching your home loan and accessing equity with a switch

Private Property South Africa
Kerry Dimmer

There are many benefits associated with moving your home loan from one financial institution to another, and it’s not as admin-heavy as you think. Portia Letlape, Portfolio Manager at Absa Home Loans, details the advantages.

Q: What does 'switching a home loan' mean, and why would a homeowner do this?

Home Loan Switching is when a bondholder moves their home loan balance from one bank to another. Homeowners switch their home loans for one of the following reasons:

  • If the bank they are switching to offers better interest rates, thus saving on monthly repayments and total interest charges;
  • If they are not happy with the service from their current bank
  • To have all transactional banking products with one bank, which allows them to enjoy reward benefits offered by the potential new bank.

Q: How does switching enable an applicant to access the equity in the home?

If the property’s value has appreciated over time and there is equity available, a customer can opt to switch their home loan to another bank and apply to have access to the equity available.

Q: Does this solution always result in more equity?

A customer may choose to only switch their home loan to another bank and enjoy the reduced interest rate but not access equity. If the property’s value has not increased when a customer switches the home loan, there is no equity to access.

Q: Does access to more equity and its use come with conditions?

When a bank grants a loan to a customer based on accessing the equity in their property, there are no conditions on how such funds can be used. Customers may consider putting those funds towards school fees, holidays, home renovations and even installation of solar solutions. The bank does not control how the funds are used at all.

Q: What are the conditions for switching the home loan, and who qualifies?

Banks do not place any conditions on a customer when switching a home loan. The usual home loan conditions, however, do apply, such as:

  • Ensuring there is property Insurance on the property;
  • Ensuring there is life insurance cover in place (if mandatory); and
  • Monthly repayments must be paid on time, which is also a condition of application for switching.

Q: What are the costs associated with switching a home loan?

  • Early termination charges – The bank from which you are moving your home loan may charge up to three months in interest charges. You may, therefore, need to provide three months’ notice to the existing bank, informing them of your intent to cancel your home loan with them and thereafter wait out the three months before cancelling your home. In this way, you may avoid early termination charges.
  • Cancellation attorney fees – The existing bank will appoint a cancellation attorney to cancel your bond at the deeds office. Bond cancellation costs are payable to the cancellation attorney by the home loan owner.
  • Bond registration fees – The bank you are switching to requires a new bond to be registered in the deeds office when the home loan is switched and will appoint a bond registration attorney. The owner must pay bond registration costs to the registration attorney.
  • Initiation fees – Initiation fees are charged by banks when a new home loan is initiated, and these costs are a once-off payment or can be added to your loan amount.

Q: Does an existing home loan with another institution need to have been in existence for a particular period before it can be switched to Absa?

Customers can switch a home loan at any time during the term of the home loan.

Q: What are the advantages of having all transactional accounts with Absa, including your home loan?

Most banks offer rewards programmes that are designed to benefit the customer. The basic principle is that the more products a customer has with the bank, the more rewards can be accessed. When a customer switches their home loan to Absa - subject to a credit assessment and affordability assessment - the following rewards apply:

  • A lower interest rate may be offered on your home loan
  • The lower interest rate, in turn, reduces the monthly home loan instalment
  • The lower interest rate also reduces the overall interest charges over the term of the home loan
  • If equity is available, you may be able to access additional funds
  • Absa transactional customers who have registered for Absa Rewards programme earn more Cash Back when they have a home loan with Absa.
  • Absa Rewards gives customers up to 30% in real cashback depending on the customer’s rewards tier from partners such as Sasol, Woolworths, Pick n Pay and Food Lovers Market.

Q: How onerous is the process of switching, and are the other banks amenable to this or do they make it difficult in their reluctance to lose a client?

The switching process includes the following steps:

  • Completing an application with the bank to which you wish to switch, including a property valuation of your property
  • Credit and affordability assessments are conducted, after which the home loan switch is approved
  • A notice to cancel your home loan must be given to the existing bank
  • The bank you are switching to appoints a bond registration attorney to register your bond with the Deeds Office, and the bond registration costs are payable by you to the attorney
  • The bank you are switching from appoints a cancellation attorney to cancel your bond with them at the Deeds Office, and the cancellation costs are payable by you to the attorney
  • You need to ensure that you satisfy the conditions placed on the home loan by the bank you are switching to, such as property insurance, life cover (where applicable) and set up a debit order to pay your monthly repayments.

Note: Once you place a notice to cancel on your account, your current bank may contact you to determine your reason for switching and attempt to resolve the reason for cancelling your home loan with them for retention purposes.

Q: What is the process to apply to switch to Absa?

You can engage with one of our property finance specialists, private bankers or branch consultants if you prefer a personal touch. Alternatively, you can visit the Absa website and apply online to switch to Absa.

Writer : Kerry Dimmer

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