How to reduce your home loan interest rate | Tips to relieve some financial pressure

If your goal is to pay the least possible amount of interest on your bond in the long-run, a variable interest rate is always going to be your best bet. However, if you're facing uncertain financial times and are willing to pay a little extra for the security of knowing exactly what you owe each month (for up to 5 years), a fixed rate may be the option for you.

So says Leonard Kondowe, Finance Manager for Rawson Property Finance and advises that a lot depends on your personal situation and risk profile.

"What makes sense for one bondholder may be a terrible idea for another. If you're not sure what to do, I'd always recommend talking to a bond originator. We're very happy to share our experience and advice to help you choose the most appropriate finance option for your needs," he says.

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Kondowe says one of the biggest misconceptions about fixing home loan rate is that  people always think it will be cheaper to fix rates on their home loans when rates start rising, however the truth of the matter is that  this will always not be the case as each client will always be individually assessed and also when banks anticipate rates to go up they will always price for risk which means you will be paying a much higher rate that you would have ordinarily pay if the rates were to be stable.

"So fixing rates is always not a solution, but this can be done on an individual basis dependent on each individual's unique circumstances. Fixed rates will always be at prime plus and once the fixed term period lapses the lender will have to re-assess and give you a new risk dependent rate which may always not be favorable," he says. 

Commenting on the latest unchanged repo rate (20 July 2023.) Property24, Kondowe said that it relieves South Africa's already embattled consumers, who are facing skyrocketing costs across the board.

 "Inflation has slowed over the course of May and June to fall within the upper limits of the SARB's inflation target for the first time in over a year," said Kondowe. However, global inflation and the weak rand also play an important role in the MPC's interest rate decisions.  "As such, it's unlikely that we will see monetary policies easing until things are looking more positive on these critical fronts. That could take some time, judging by current conditions," said Kondowe.

Advice for homeowners

For South African homeowners, this means a potentially long road ahead.

"Bond repayments have risen faster on previous rate hikes which have been higher than anyone expected, and salaries haven't come close to matching those changes" says Kondowe, "That has put a lot of homeowners under unexpected - and growing - financial pressure. My best advice, under the circumstances, is to focus on reducing unnecessary spending, avoid taking on new debt, and follow a strict monthly budget."

Where simple budgeting will not suffice, Kondowe recommended approaching home loan providers to discuss debt restructuring options.

"Lenders are very open to compromises that will help protect their investments," he said. "Don't be shy to approach them and discuss options. At best, you'll find a mutually beneficial solution. At worst, you'll walk away with a better idea of what your next steps should be."

Downscaling might relieve some financial pressure

Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, (15 April 2023) Property24, said, homeowners need to prioritise keeping up with the repayments on the home loan or risk losing the house and tarnishing their credit score. 

"If things get too tight, act sooner rather than later. Rent out a spare room in your home to help you afford the repayments or downscale to something more affordable before things get too out of hand," he recommends.

Goslett adds that living in a smaller space is also far more cost effective, which could help struggling homeowners keep up with the rising cost of living. "Larger homes often mean running up larger water and electricity bills than a smaller home would. That translates into more disposable income every month for those who choose to downscale," Goslett explained.

By downscaling, homeowners might also need to sell some furniture and other items that might not fit into the new home. This could also bring in some extra cash to help cover the higher costs of other debt repayments.

"When moving to a smaller home, every square metre becomes essential. This usually means fewer spaces to clean and less space in which to store unnecessary items, which could create a less stressful, less cluttered home," he added.

For those who are unsure about whether they are ready to downscale, Goslett recommended setting up an appointment with a RE/MAX agent to discuss the possibilities. "It can be a lot easier to make up your mind after viewing a few options in person. You might be surprised by what you find when you start looking. If you establish a good working relationship with a reliable property professional, they can then walk you through your options and provide you with some valuable guidance along the way".