Do you know what determines the interest rate your bank charges on your mortgage bond? The rate is tied to the “prime lending rate”. Set by the Reserve Bank, prime is currently 11% (as of 5 February 2025, until the rate is adjusted).
However, the bank might charge a percentage or a fraction of a percentage more, or less, than the prime rate. And securing a lower interest rate could be within your control.
Not interested in quibbling over 0.5%, for instance? Compare the two. Vanashree Naidoo, Strategic Platform Lead at FNB Home and Structured Lending, provided this calculation: if the amount borrowed is R1 million, over a 20-year time period, at 11% interest, the total interest you will pay will be R1 477 252. At 10.5% interest, the total interest is R1 396 112. That half percent means that you will have R81 140 in your pocket, rather than in that of the bank.
So how do you get a better rate? Adopt these strategies.
#1 Save for a deposit.
“Putting down a deposit demonstrates responsible credit behaviour and reduces the borrowed loan amount,” explains Nondumiso Ncapai, Managing Executive: Absa Home Loans. “It also ensures you have positive equity in the loan which reduces your risk as a customer, contributing to improved pricing on the bond.”
“Aim to put down a deposit of at least 10%,” advises Naidoo. “A lower loan-to-value ratio – that is, a larger deposit – reduces risk for the bank and can get you a lower rate.”
#2 Think carefully about the term and type of rate.
Further levers are the term of the loan and whether you opt for a fixed or a variable interest rate. “Shorter-term loans – that is, 20 years – usually come with lower rates than 30-year loans,” says Naidoo. “And fixed rates tend to be higher than variable rates, as banks account for future rate risks.”
#3 Make sure your credit record is good.
When a consumer approaches a credit provider for credit on a service or a purchase, the National Credit Act (NCA) requires the provider to assess whether the consumer can afford the repayments on the loan and to check all monthly debt repayment obligations on the consumer’s credit profile at a credit bureau.
“A high credit score [a good payment track record] signals lower risk to banks. It’s beneficial when trying to secure a better rate for home finance,” says Naidoo. The banks also consider your debt-to-income ratio (DTI). “The lower your DTI and the higher your disposable income, the better,” Naidoo explains.
You are entitled to access your credit report from each of the credit bureaus once a year. Find their websites listed here.
Perhaps you’ve made some late payments? The information is not held permanently, so if you make a point of paying up, and making your monthly repayments consistently and on time, any blots will not be visible on your credit profile after some time..
#4 Your own bank might be best.
“As is the case with Absa customers, if a consumer is a primary client of their bank, they are likely to get a more favourable interest rate on their bond,” says Ncapai. “This is because banks have more information concerning their customers and are therefore able to provide more competitive offers with additional benefits for existing bank customers.”
Naidoo concurs that most banks offer a main bank interest rate concession when you have a transactional account with them. In addition, existing customers with multiple products may qualify for better rates.
#5 Check whether you qualify for a government subsidy.
“If you are a first-time home buyer and your household income is between R3 501 and R22 000 per month, you could qualify for a First Home Finance government subsidy ranging from R38 911 to R169 264,” says Naidoo. “This can help with improving affordability and lowering your loan-to-value ratio.”
