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Why switching your home loan may be a smart move
Want to save on the total cost of your home loan? Here’s how...
Have you ever thought about switching your home loan to another bank to save some money? Depending on your circumstances, that could be a smart move. Consider this:
Can you really save money by switching?
Yes – you save money if you get a lower interest rate when switching home loans. Not only will your monthly repayment be lower, but so will the total amount of interest you’ll pay over the life of the loan. It’s those savings on interest that will make the biggest difference to your long-term finances.
For example, let’s say you still owe R1 million on your home loan, to be paid off over another 15 years. At an interest rate of 8%, the interest over the remaining term of your loan will be just more than R720,000. If you were to switch to a bank offering you a 7% interest rate, you could save a whopping R102,000 in total interest over 15 years. Even if you managed to get only a 0.5% reduction in your interest rate (to 7.5%) you can save yourself more than R51,000.
What does switching involve?
When you switch your home loan to another bank, you’re effectively applying for a brand-new home loan. You have to go through the same steps as you did with your original home loan. Therefore, you must pass affordability and credit checks, and have the new bond registered with the deeds office. There are financial as well as timing implications.
Another way to unlock the value of your home is to switch a loan equal to its current value
From a cost point of view, you’ll be responsible for the legal charges to switch and register the new bond, which include fees levied by a bond registration attorney. Bond registration fees are determined on the size of your home loan. Total costs for a R1 million home loan, for example, are in the region of R32,000. There are no transfer costs, as you are switching your loan (there isn’t a property sale involved – therefore there are no transfer costs or transfer duty).
You can calculate the expected legal costs of switching your home loan with our handy bond and transfer cost calculator. In addition, you’ll have to pay your lender’s loan initiation fee, which is a set amount of R6,037. When switching your home loan to Nedbank, you may be offered reduced rates on some of these fees to help you to make the change seamless. If you’re interested in switching your home loan to Nedbank, use our ‘call me back’ form to get in touch with our expert home loan sales consultant.
It’s worth remembering that you may be liable for early-termination and bond cancellation fees by your existing home loan provider. It’s best to check the wording of your home loan to see if cancellation fees apply, and what notice period you’re expected to give before terminating your current loan.
Other ways to benefit from switching
You need to do all the maths, comparing savings to total costs, before you decide whether it’s worth switching your home loan. But bear in mind that if you can afford to keep paying your original repayment amount every month, even after switching to a home loan that requires a lower minimum payment, you will pay your new home loan off faster, saving even more on interest.
Another way to unlock the value of your home is to switch to a loan equal to its current value, which should be greater than the amount you still owe. You can then use the difference to finance upgrades to your home. A smart move that would save you money in the long run would be to use this money to install solar energy. This is such a popular option that Nedbank has a programme aimed specifically at homeowners who want to reduce their monthly electricity bill. For more info visit our solar energy finance page.
Once you’ve considered all the costs and benefits of switching a home loan, you can decide whether it’s the right move for you.
