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A Fin24 user wants to know if he can renegotiate the interest on his home loan. He writes:
I bought a house four years ago at an interest rate of 12.5%, and it feels like it is very high.
I was told that my credit profile was not good at that time.
Is it possible to renegotiate the interest rate, since my credit profile looks a little healthier?
Riaan Verbeek, finance executive at FedGroup, responds:
You are right, a 12.5% interest rate is quite high. A normal interest rate would be around prime (currently 8.5%) or prime plus one.
Renegotiating your loan even one percentage point less than what you currently have could save you a substantial amount of money.
Before you approach your bank, it is wise to check your credit rating to make sure that your profile is indeed healthier. This can be done at any major credit bureau (some offer this service free of charge).
Checking your credit rating will enable you to pick up on any mistakes or anomalies, and have them corrected before you start renegotiating your interest rate.
Once you are sure of your credit profile, approach a mortgage originator. Depending on market and risk conditions, a mortgage originator will source the best interest rate available to you.
They will negotiate with your bank on your behalf. If your bank is not willing to adjust your interest rate, they can approach one or all of the other major banks for you.
Bear in mind that you might be required to pay bond registration or cancellation fees if you switch to another bank, but factor that into the savings on interest you might receive by switching the loan (fees will not be payable if you stay with the same bank).
If you are able to negotiate a lower interest rate, you should consider paying what you save on interest into your bond account. Doing so would shorten the life of your home loan.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
I bought a house four years ago at an interest rate of 12.5%, and it feels like it is very high.
I was told that my credit profile was not good at that time.
Is it possible to renegotiate the interest rate, since my credit profile looks a little healthier?
Riaan Verbeek, finance executive at FedGroup, responds:
You are right, a 12.5% interest rate is quite high. A normal interest rate would be around prime (currently 8.5%) or prime plus one.
Renegotiating your loan even one percentage point less than what you currently have could save you a substantial amount of money.
Before you approach your bank, it is wise to check your credit rating to make sure that your profile is indeed healthier. This can be done at any major credit bureau (some offer this service free of charge).
Checking your credit rating will enable you to pick up on any mistakes or anomalies, and have them corrected before you start renegotiating your interest rate.
Once you are sure of your credit profile, approach a mortgage originator. Depending on market and risk conditions, a mortgage originator will source the best interest rate available to you.
They will negotiate with your bank on your behalf. If your bank is not willing to adjust your interest rate, they can approach one or all of the other major banks for you.
Bear in mind that you might be required to pay bond registration or cancellation fees if you switch to another bank, but factor that into the savings on interest you might receive by switching the loan (fees will not be payable if you stay with the same bank).
If you are able to negotiate a lower interest rate, you should consider paying what you save on interest into your bond account. Doing so would shorten the life of your home loan.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
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