Becoming a homeowner is a significant milestone in one's life, often accompanied by a sense of accomplishment and excitement. However, amid the joy of homeownership, first-time buyers sometimes overlook a crucial aspect that can greatly affect their financial journey—the interest rate on their home loan.
Interest rates play a pivotal role in determining the affordability and long-term financial implications of a home loan. In this blog post, we will explore why interest rates matter and discuss three essential tips to secure a better interest rate when applying for a home loan.
Understanding the Impact of Interest Rates
Interest rates are not static; they fluctuate in response to economic conditions. The higher the interest rate, the more you'll pay each month towards your home loan. To illustrate this point, consider a home loan of R1 000 000 for 20 years. At the current interest rate of 11.75%, your monthly repayment will be R10,837. However, if the interest dropped to 11%, your monthly repayments would drop to R10,321 - saving you R561 a month. And in though economic times any amount of savings is very welcome.
However, instead of simply relying on interest rates dropping, you should start by getting the best possible interest rate from the start. We take a look at essential tips to help you secure that more favourable rate.
Improve Your Credit Score
Banks consider numerous factors when assessing your eligibility for a home loan. One of the most critical factors is your credit score. This score reflects your financial discipline and repayment history. A good credit score often leads to more favourable interest rates, making homeownership more affordable. Conversely, a poor credit score can result in a higher interest rate or even lead to the rejection of your home loan application. To boost your credit score, maintain a consistent record of timely bill payments and responsible financial behavior.
Opt to get prequalified to see what you might possibly be able to qualify for and to identify any problems before you apply for a home loan.
Use a home loan expert
Many home buyers apply for their home loans at their own banks without even considering shopping around. Using home loan experts like the team at MyProperty Home Loans will help you apply to all the major financial institutions, which in turn might reveal a bank that offers you a better interest rate than your own bank.
Consider a Higher Deposit
Paying a higher deposit when purchasing a home can have a positive impact on your credit profile and increase your chances of securing a lower interest rate. A larger down payment reduces the risk that the bank assumes when granting you the home loan. Consequently, the bank may view you as a less risky borrower and offer you a more attractive interest rate. While the immediate effects of a higher deposit may not be apparent, they can lead to significant long-term savings.