How can I make sure that I am getting the best bond interest rate with my bank?

[scannon586]

So I am a first time buyer with a credit score of 800 & looking to make the jump on a good investment property.

After much negotiation, I've finally had a reasonable OTP approved by the estate agency on a property which I really like, which really stood out to me.

The bond originator had come back with an interest rate that is 0.68% below prime, which also happens to be with the bank which I bank with (FNB).

A) Is it advisable to approach my bank directly for a better offer or am I short outta luck for anything better being thrown on the table?

B) Is it advisable to put down a deposit after or during the bond registration - or put one down at all?

C) Adding a lump sum later down the line? (If>when?)

It just feels like it's all happening too fast and would really like some advice from previous buyers/sellers before taking the plunge.

Thank you!

Edit: (Update)
I have approached the banks myself since the originator kept wanting to close and settle at a high rate. My main bank being FNB, their consultants were extremely helpful & was always willing to match or beat - ended up with -1.82% below prime!

I couldn't have done it without everyone's valuable input here, thank you all!

 

[heidi2014]

@scannon586 Homeloans specialist here, 16 years working for a major bank in their Homeloans dept and now in the private sector.

Someone mentioned earlier conflict of interest but the correct wording is 'channel conflict'. If you were to apply with your bank directly at this stage you will have to completely withdraw the application at the mortgage originator. The bank won't be able to do another application if there is already one in the system. And there is no guarantee that you will receive a better rate by going directly. Best option here is get final quotations from all the banks and if another bank gives you a better rate, take that quote and ask your bank to better the others bank's rate. Usually they will match it or go 0.1-2% better.

Paying a deposit of 5%, 10% or 20% would lessen the banks risk and therefore better your interest rate. The higher the risk (higher loan % to total purchase price) the higher the rate, the less the risk the lower the rate. With vehicle finance its the opposite.

You can a pay a large lumpsum after registration which would decrease your monthly repayment, and that money may be available to be withdrawn later if need be (if you choose the flexi facility/ access bond option). If you dont need to have access to that money later its best you dont choose that option because then the additional funds would be capitalised and therefore the daily interest charged on the capital amount would become less every month. Best advice would be to pay an additional amount into your bond monthly without a flexi reserve facility (e.g extra R1000 over and above your repayment). That would cause you to pay off your bond in 7 years and not 20/30 thus saving you a mountain of interest.

 

[brandon9]

@heidi2014 101 - great advice!! Did not know about the different interest mechanism with vehicle finance - I would have thought that vehicle finance would be a lot more risky, therefore larger percentage with a larger loan-to-value ratio (like property).

 

[heidi2014]

@brandon9 The common perception is that yes. Two total different interest mechanisms. Property = interest rate is calculated daily vs vehicle finance = total interest over the fixed period divided into monthly repayments. Bank wins if you pay your bond off over the 20-30 years. Think you'll pay something like R3m for a R1m property. But how you beat the bank is just to pay in extra 5% every month. That extra 5% comes off the capital amount, next month's interest portion of your monthly repayment will be ever so slightly les, because of the daily interest mechanism. But how the banks countered was to add a flexi reserve facility for you to have access to those additional funds. Because you know, money in the pocket burns...lol

 

[danmillward]

@scannon586 Check your bond originator contract because you almost certainly signed saying that you will not approach the bank directly. I'd be surprised if you can get a better rate anyway.

Do not put down a deposit if you don't have to. Home loan accounts are almost always flexible (i.e. you can just transfer money in and out at will up to the limit) so once it registers, you can just transfer your excess cash in and reduce your interest while maintaining instant access.

 

[scannon586]

@danmillward Makes perfect sense, I am confident it is a good offer and will definitely look into what I have signed for in terms of approaching the banks directly, thank you!

 

[theflowerswillflourish]

@scannon586 If you go with your main bank in FNB, they will give you an extra .25% off your interest rate if you Sign that they will be your primary bank account.. ie. your salary gets paid into that account.. I know for sure fnb does it.. and other banks should have a similar thing..

 

[abubu1]

@danmillward But you’ll still have the higher monthly payment. If they have to have a lower payment then pay deposit, if not don’t

 

[danmillward]

@abubu1 But the higher payment just comes from your surplus anyway and you retain access to the full amount.

There's only downside with the deposit and taking out a lower bond as that deposit becomes inaccessible.

 

[abubu1]

@danmillward True, but not everyone can afford the higher payment so knocking down the instalment is a plus. I am one of those people, I’m in sales so my salary varies a lot. So I pump my commissions off my capital so instalments are less for months I have to live off my basic.

 

[danmillward]

@abubu1

True, but not everyone can afford the higher payment so knocking down the instalment is a plus

You are not understanding. Your additional payment piece just comes off the amount you have in excess. There's no difference.

The only reason to do the deposit is if you are irresponsible and can't help yourself from spending. Which is kinda null because you wouldn't have the deposit in the first place if that was the case.

 

[abubu1]

@danmillward If you take it off the capital it lowers your instalment but you no longer have access (well easy access). I fully understand that this is excess payments. All I’m saying is for some people it makes more sense to have a lower instalment than a shorter loan. This can be a huge benefit to paying a deposit for people who have varying incomes. So not paying a deposit is mostly better but not always

 

[danmillward]

@abubu1 Nope. Still not getting it. The length of the loan isn't shorter or longer.

If I have a bond of 1m with a repayment of 10k and a 500k deposit for the house or a bond of 1.5m and 500k cash with a repayment of 15k it's always better to take the latter. I can put the 500k in and have access to it. So when the payment goes off my account for 15k, I just transfer the 5k into my cheque account to make up the shortfall for the 15k the day before the debit order.

 

[abubu1]

@danmillward Ok let’s take your example and explain it with a varying salary.

Say a basic of R15k a month, but on average you earn R30k in commission. So I’m an average month you earn R45k so you can afford the R15k a month payment. However this is on average. There might be a period of 6 months where you earn 0 commission, then on month 7 you get R210k in commission. It would make more sense to save the commission till you had R500k as deposit then you can rather have a R10k bond and still survive on R15k basic till the next commission. Bearing in mind there’s zero guarantee there will be a commission in the period at all. So if they did it your way they would be eating in to the R500k every month there’s no commission. Which given how inconsistent sales is they might run out of money before the next commission, so it is absolutely better to have the lower repayment as it’s far less risk if they can live off their basic completely.

 

[danmillward]

@abubu1

It would make more sense to save the commission till you had R500k as deposit then you can rather have a R10k bond and still survive on R15k basic till the next commission. Bearing in mind there’s zero guarantee there will be a commission in the period at all. So if they did it your way they would be eating in to the R500k every month there’s no commission.

This person is not saving for anything. They are asking whether to use the cash they already have as a deposit or not. You are arguing about saving up for a house to basically make it more affordable which is a different scenario.

In my example (which is the same as OP) there is literally only downside because you can't access the deposit but you're paying the same interest as if you put the cash in after getting the bond.

 

[abubu1]

@danmillward I never said I was advising OP. I was saying it’s not always better

 

[nikhilsjohn]

@scannon586 I bought a place late last year, also a first time buyer, I got -0.75%. No deposit, 100% loan.

Check that yours is the main banked rate. Basically they kick in an extra .25 or so if you use them as your main bank. nedbank came in very close, but I didn’t feel like dealing with multiple banks.

Make sure to also push for 50% off your bond registration fees. Transfer I don’t think they can do anything about, but bond fees I got a 50% reduction.

 

[cturtle]

@nikhilsjohn Totally agree with this. I just went through this process. My main bank gave me -0.75. I asked the originator to enquire with investec (who they hadn't initially gotten a quote from) and ask what would their rate be if I moved to them. They gave -1% which my main bank beat by .02%

 

[scannon586]

@nikhilsjohn Wow didn't know that I could actually ask for 50% off bond registration fees, thank you will definitely push for this.

 

[hsrl]

@scannon586 Option D; tell the Bond Originator you aren’t happy with the rate they got you and they should try again.