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What is Involved when Switching your Home Loan

What is Involved when Switching your Home Loan to Get a Better Rate?

It is not only the consumer who is feeling the bite of the NCA and the prevailing higher interest rates. Some of the banks are reporting decreases of up to 20% in home loan applications and, considering that home loans are a major contributor to retail banking bottom lines, they too are feeling the pinch.

This pinch could bode well for consumers as the major banks, private banks and non-banking lenders step up their already intense competition for market share. This could see greater leniency in evaluating your home loan application, a greater preparedness to offer you better rates concessions, and a greater willingness to forgo the fees you would normally have to pay when switching your home loan to get a better rate.

In an attempt to differentiate themselves from the competition, it is likely that South African lenders – as was the case with their US, UK and Australian counterparts - will start developing and releasing innovative home loan products that are aimed at meeting the specific needs of the different consumer segments. These could include true fixed rate home loan products (bear in mind that the South African fixed rate products are term products only), longer term mortgages (in the US your mortgage can be for a 50 year term), and improved variable / fixed hybrid home loan options, amongst others.

Given all of the above, you might as well capitalise on the competition and return some of your hard earned money to where it belongs: your pocket.

If you decide to explore switching your home loan, making use of a mortgage originator will make shopping for competitive rates a painless experience. For starters, good home loan originators have relationships with the four major banks, the private banks and a variety of non-bank lenders. This means that they can source quotes from everybody. Secondly, they are known to negotiate better rates concessions than individuals and finally, their services are free. The banks foot that bill and the costs are never passed on to you.

If you are using a mortgage originator, there are eight simple steps towards switching your home loan to secure a better rate:

Step 1:

Approach a reputable mortgage originator.

Step 2:

Ask your mortgage originator to establish what your credit profile looks like. If your score is lower than you anticipated, it is probably a good idea to request a copy of your credit report. Check whether there are any anomalies and resolve these as quickly as possible. Your credit rating could deliver as much as a 1.5% rate concession, so this could be time well spent.

Step 3:

Explain your reasons for considering the switch to your mortgage originator. In addition to interest rates, you might have better service, access to additional funds or debt consolidation in mind. The mortgage originator will take note of your needs and your circumstances to help you determine the type, the size and the term of the loan best suited to you.

Step 4:

The standard cost of a re-mortgage is approximately 1% of the home loan amount. Having said this, the mortgage originator will know exactly who charges what, who offers reduced fees and who are prepared to completely waive their re-mortgage fees. This is helpful if you want to eliminate some of the contenders upfront.

Step 5:

The mortgage originator will assist you with the completion of an application form. The application form will – amongst others - contain your personal-, financial- and employment details as well as information about your property and the mortgage you hold. In support of your application you will need to submit the following documents:

Bank Statements
Proof of income
Latest home loan statement
FICA documentation
Body Corporate financial statements, if applicable

If you work through a mortgage originator, there will be one set of paperwork only, which they will submit to the major banks, the private banks and the non-bank lenders for evaluation.

Step 6:

Once the mortgage originator receives the responses, you can work with the originator to decide which of the provisionally approved applications are the most appropriate.

Step 7:

The originator will notify the chosen lender that you intend transferring your home loan to their bank. At this point, additional documentation will be requested and a valuation will be done on your home.

Step 8:

If all checks out and final approval is granted, you will need to give notice to your current bank. 90 days’ notice is normally required, depending on where your mortgage is held. At the same time, you will pin down a starting date with your new lender and sign the necessary agreements.

To conclude

The new face of consumerism in South Africa includes a far more mercenary approach towards banks. Moving your mortgage to whosoever it is that offers the best rate, is quickly becoming the norm. With that in mind: Spending a week or two at a time (buried in banking red tape) with Do It Yourself Home Loan Switching, will probably eventually preclude you from bargain hunting the best rates. Perhaps it is a far better idea to establish a relationship with a mortgage originator from the outset. After all, they keep a finger on the pulse, can notify you when there is a viable opportunity to capitalise from switching and are very prepared to do all the leg work on your behalf. This is just about as good as it gets.

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