Is bond switching the key to lower mortgage payments?
In recent years, bond switching has become an increasingly popular choice among homeowners looking to reduce their monthly payments, access better loan terms, or take advantage of improved interest rates. But is switching your home loan the right move for you? Before making any decisions, it’s important to understand what bond switching entails, the potential benefits and risks, and the process involved. What is Bond Switching? Bond switching refers to transferring your existing home loan from one lender to another to take advantage of better terms, such as lower interest rates or more flexible repayment conditions. Unlike applying for a new bond to buy a home, bond switching is purely about refinancing your current loan. This process can help you secure a better deal without the need to sell your property. Why Would You Consider Switching Your Bond? There are several reasons why homeowners in South Africa may consider switching their bond: Lower Interest Rates: If interest rates have dropped since you took out your bond, switching to a new lender with more competitive rates can help you save a significant amount of money over the life of the loan. Better Loan Terms: You may find a lender offering better repayment terms that suit your current financial situation. This could include flexible payment options, the ability to adjust your payment period, or lower monthly instalments. Improved Credit Profile: If your credit score has improved since you first took out your bond, you might qualify for better terms with a new bank, helping you lower your interest rate or shorten your repayment period. Consolidate Debt: For homeowners with multiple debts, switching your bond can provide the opportunity to consolidate your debt, simplifying your finances and potentially reducing your monthly payments. Access to Equity: If you’ve built up equity in your home over time, you may be able to access this money when refinancing your bond, which could be used for renovations, investments, or other financial goals. The Process of Bond Switching The bond switching process typically involves two key stages: bond cancellation and new bond registration. Bond Cancellation: Your current home loan must be settled with your existing lender. This involves cancelling the bond with the deeds office, which requires the assistance of a conveyancer or property attorney. New Bond Registration: Once the original bond is cancelled, a new mortgage is registered in favour of the new lender. This is also done at the deeds office, and legal fees will apply for this process. Both of these steps require a conveyancer to manage the legal aspects, ensuring that everything is processed smoothly and in compliance with the law. Costs Involved in Bond Switching While bond switching can be financially beneficial in the long run, it’s important to be aware of the costs involved in the process. These may include: Bond Cancellation Fees: Your current bank may charge a fee to cancel the bond. New Bond Registration Fees: The new lender will require a bond to be registered in their name, which incurs fees. Conveyancing Fees: A property attorney will need to handle the legal aspects of both the bond cancellation and the new bond registration. Early Termination Penalties: If you switch before your initial bond term ends, you may face penalties for early termination, depending on the terms of your original agreement. Is Bond Switching Right for You? Bond switching can be a great way to save money and improve your financial position, but assessing your personal situation is essential before making any decisions. Consider your long-term financial goals, the costs involved, and whether the benefits outweigh the risks. If you’re considering switching your bond, be sure to speak with a financial advisor or property law expert who can help you navigate the process and ensure you make the best decision for your circumstances. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
How to obtain a home loan: Things to consider before you apply
With most of the major interest rate hikes now out of the way, 2023 is set to provide a more stable environment for financially savvy, would-be home-buyers to enter the property market. While the economic outlook is set to be less turbulent than during the previous year, it’s still vitally important to take charge of your spending and prioritise assets that will pay off in the long run. While some South Africans are opting to rent, ooba’s statistics indicate that there is still strong demand for home-buying among both first- and second-time buyers due to the competitive lending environment. Where to start Before starting the process of shopping around and applying for a home loan, potential homebuyers should have a clear understanding of what they can realistically afford. A good rule of thumb is that a monthly home loan repayment should not exceed 30% of your monthly salary. There are free tools online such as ooba’s Bond Indicator, that allow you to check your credit score, see what you can afford, and provides you with a prequalification certificate which is valid for 90 days. More than just a piece of paper, a pre-qualification certificate plays a vital role in boosting your chances of receiving preferential interest rates, as it ‘primes your financial profile’ prior to applying. Once this step is completed, it’s time to talk about budgeting and saving. It’s important that you budget accordingly, preparing yourself for the added costs associated with homeownership, including: the cost of registering your bond; transferring the property into your name; and paying the transfer duty on your new home (applicable to properties over R1 million). Also, while banks continue to approve 100% home loans, buyer demand for zero-deposit loans has dropped by 7% from Q4 ’21 to 57% of applications in Q4 ’22. We, therefore, recommend that buyers factor in a deposit of around 10%. For first-time South African homebuyers earning a single or joint gross monthly household income of between R3 501 and R22 000, there is also a good chance that you can qualify for the Finance Linked Individual Subsidy Programme (FLISP). Don’t forget the paperwork In addition to the general criteria that to apply for a home loan, homebuyers must be 18 years or older, permanently employed for at least six consecutive months, or self-employed for the past two years, the following five documents are required to complete your application and give you the greatest chance of successful approval: Proof of income: The majority of the banks will ask for your last three pay slips from your employer (or accountant if you are self-employed) as proof of regular income. Bank statements: Banks will request the last three months’ bank statements from your personal account. These will be used to verify your monthly income and expenditure, which includes monthly debt repayments and living expenses. If you are married in community of property or are applying for a joint home loan, your partner’s bank statements will also be required. A copy of your ID: Make sure that you have a copy of your South African identity document scanned and ready to go. Personal assets: The loaning banks will request a bird’s eye view of your personal assets and liabilities through your bank statement. The purchase agreement:The banks will need to see a copy of the purchase agreement on the home that you are wishing to purchase. Remember that a bank valuator is sent around to the property to make sure that it is valued correctly. A lot of these take place electronically these days; however, it remains a key requirement for final bond approval. Help is at hand The process of applying for a home loan especially the first time around can be daunting. A free home loan comparison service offers you tools to check your credit score and determine your affordability, helps you get your documents in order, and submits your home loan application to multiple banks so that you receive the best possible interest rate. WRITTEN BY Rhys Dyer Rhys Dyer is the chief executive officer of ooba Home Loans. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)