Wanna switch your home loan to a different bank? Read this first
In the past 12 months, 6% of home loans granted were switches from one lender to another. This is according to Peter Swartz and Nondumiso Ncapai, heads customer interaction and business development at Absa Home Loans.
There are many reasons why homeowners switch their mortgages from one bank to another, including seeking a better deal, being in arrears and consolidating bank accounts, but the decision to switch should be given as much – if not more – consideration as applying for a new home loan.
While buying a new home comes with additional costs, such as attorneys’ fees, bond registration and transfer fees (if the home loan value is more than R750,000), switching incurs early cancellation penalties (if 90 days’ notice is not given),the attorney cancellation cost as well as the new bank’s bond registration fee.
“One needs to carefully consider the switch as there are associated costs involved and the appropriate planning and budgeting is important,” says Andrew van der Hoven, head of home loans at Standard Bank. “The attorney registration cost, similar to a new application, would also be applicable. Furthermore, one needs to weigh off significant factors such has the interest rate and fees difference when determining if the switch is worth the time and cost incurred. As one would thoroughly assess all factors before buying a home, the same care must be given when determining to switch.”
South Africa’s banks have had to become more stringent in their lending practices, evidenced by the fact that only 65% of first-time bond applications have been granted. Therefore, just because you have had a bond with your current bank for the past 10 years, it does not mean that you will automatically receive a better interest rate at a new bank or even be considered a worthy borrower. The economic landscape has changed dramatically in the past 10 years and your personal financial record may well have deteriorated as a result.
Absa’s requirements for taking on clients wanting to switch include the bank’s credit criteria and supporting documentation, and the merit of the applicant.
According to FNB’s home loans head of sales, Stanley Mabulu, the qualifying criteria on a new home loan must still be met, which includes a normal credit assessment to determine affordability.
“You must be a South African citizen with a valid South African ID,” he says. “Switching excludes non-residents/foreign nationals because of exchange control implications.”
While bond holders have every right to switch lenders, provided they can afford to settle any outstanding amounts as well as cover the associated fees, some lenders offer incentives to switch to their home loan products.
“We pay the bond registration costs to the attorney on behalf of the customer, up to the bond amount registered with the other institution,” says Mabulu. “eBucks rewards points, which contributes towards rewards level, are granted and you can manage your loan account online at any time.”
Absa’s Ncapai says their standard switching offer includes a competitive interest rate, up to a maximum term of 30 years, a fixed or variable interest rate (the fixed rate is only available after registration), electronic access to the home loan, and the ability to make additional deposits via Absa’s flexi reserve offering.
Currently, however, Absa’s Great Escape promotion is seeking to actively attract current bond holders at other institutions.
“An example of a switching campaign that would assist prospective customers specifically with the cost aspect would be our current Absa campaign that is available until 31 March 2017,” says Swartz. “Additional to our standard switch incentive offering are the following benefits: Zero initiation fee where customers save R5,985, a negotiated discount of 30% on Absa panel attorney bond registration costs (VAT Incl), over and above this great 30% discount, Absa will cover an additional maximum of R16,000 (VAT Incl) of the bond registration costs, and free Absa wills drafting. As usual, terms and conditions apply.”
Bond holders who are considering switching their home loan accounts to another lender should first approach their own bank to discuss any and all reasons related to the decision. There is no lender in the current market that will not want to retain its current customers. So, similar to shopping for insurance, customers may end up with a matched offer or an even better deal with their current lender – and without the headaches and costs of switching. If, however, your bond holder refuses or is simply unable to come to the table to negotiate, become part of the 6% who seek a better deal elsewhere.
The switching costs applicable to the cancellation of an existing home loan at one bank and the registration at another relevant to the attorney attending to the transaction
Bond Cancellation Fees: the attorney would need to cancel the current bond or bonds (if the customer had registered a further advance on the property) registered against the property at the deeds office in favour of the current bank
Bond Registration Fee: the fee applicable to the process of registering a new bond over the property in favour of the new bank, the fee amount would be based on the amount the customer is registering
From a banking perspective the costs/fees associated with a switch
90 Days’ Notice: relevant to the bank where the home loan is being cancelled. If the client does not give the current bank notice to cancel the home loan account, the client will be liable for this cost, which normally amounts to 3 months interest on the outstanding home loan amount at the current bank
Initiation Fee: relevant to the new home loan application. This would be the administration fee charged
Monthly Service Fee: once the new home loan is registered with the new bank, the customer would be liable for a monthly service fee on the account
* Nedbank was approached for comment but did not provide by time of publishing