What is “Switching” and why do it?
The South African property market has become extremely competitive as the financial institutions fight for market share. So, you, as the consumer can benefit from this.
Switching simply means moving your home loan from one financial institution to another.
Why would you do it? Well the answer is simple: To get a better interest rate on your home loan. A reduction of merely 0.5% on your interest rate could save you thousands of Rands in the long run. Another reason to switch is that not only has another financial institution given you a better rate but they may have also offered you additional lending against your property.
The costs of Switching
The two points mentioned above make it look very attractive to move your home loan, but you must be mindful of certain costs involved. Your current financial institution, more than likely, has penalty clauses written into your initial home loan agreement, which means you may end up paying 90 days’ penalty interest on your home loan if you cancel your existing home loan with that institution, which could be quite a hefty amount. Who is going to pay the attorneys fees and other registration costs to register your new home loan and what about the bond cancellation costs of your existing home loan? There are also valuation fees and initial administrative fees to be paid on the registration of a new bond!
With all this in mind it could, however, still be a worth while exercise to move your bond. Due to the competitive nature of the market some financial institutions are prepared to waive valuation and administrative fees as well as pay for (or a portion of) the registration and cancellation costs involved.
How do you get around the 90 days penalty fee? It is advisable to contact your financial institution to discuss this. Most financial institutions accept a 90 days notice period of your intention to cancel your home loan.
If you decide to switch your home loan you will need to provide the new financial institution with copies of your pay slip, bank statements, IDs and all the necessary documents required to prove affordability.
This article originally appeared in Property Power 11th Edition Magazine. To order your copy at the discounted price of R120 click here