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Can You Change your Home Loan Rate if Your Circumstances change?

There is a very wise saying: The only constant is change.

So, you have bought your dream house, you home loan was approved and everything is rosy. Six months later a major, and unexpected change, takes place in your life….and you can’t afford the monthly payments on your home loan anymore. Let’s be optimistic here, the major change in your circumstances could have been a positive one, such as an inheritance, or winning the Lotto, or getting married. 

We will look at the different options you have available, don’t ever assume nothing can be done. The first thing to consider is whether you have a fixed or variable home loan rate. A variable rate is the most common and means just that—it fluctuates as the prime lending rate goes up and down.

In South Africa we have been in an upward spiral for years now and some people have opted to take out a fixed rate. A fixed rate will remain the same for the agreed period, which could be six months to two years, depending on what is being offered by the banks at the time. If you have fixed your rate for two years, you are locked in at that rate, if the prime rate comes down you will still be paying the fixed rate for the remainder of your two year term. Of course, the opposite is also true, should the rates increase.

The main benefit of a fixed rate is that you know how much you are going to pay for the period your loan has been fixed and you can therefore budget accordingly. If you have chosen the variable interest rate and found that, after repeated rate increases, you simply can’t keep up your monthly repayments, you have options available to you:

The golden rule:

Whenever you experience a major change in your life, talk to your bank.

1. You have been paying off your bond for a year or two, never missed a payment and always pay by the due date. Bring this to the bank’s attention and ask them if they will consider a reduction in your home loan rate as you have now proved yourself as a reliable client.

2. You moved your current account and credit card to your home loan bank, in most cases this will qualify you to receive a lower home loan rate and reduced service fees, again, check.

3. You received a substantial increase or got married. Advise the bank of these changes and request a lower rate. As your risk profile has been positively affected by these changes, you may qualify for a lower rate at this stage.

4. If you took out your home loan years ago, the value of your property would have increased substantially and this may also qualify you for a lower rate. Remember, banks always look at the risk when determining lending rates.

5. If your changed circumstances were brought about by the spiraling interest rates, the bank will not lower your rate but, there are other ways in which they can assist you.

For most of us, our home is our biggest asset, look after it, get help when you need to, talk to an expert financial adviser.

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