Why switching your home loan may be a smart move

Have you ever considered switching your home loan to another bank? It may seem like a hassle, but depending on your circumstances, it could be a really smart move that saves you money in the long run. Let’s explore why switching your home loan can lead to financial freedom.

Can You Really Save Money by Switching?

Yes, switching your home loan can actually save you money, especially if you can secure a lower interest rate. Not only will your monthly repayments be reduced, but the total amount of interest you’ll pay over the life of the loan will also decrease. It’s these savings on interest that can make a significant difference to your long-term finances.

Let’s take an example: imagine you still owe R1 million on your home loan, to be paid off over the next 15 years. At your current interest rate of 8%, the interest over the remaining term of your loan would amount to more than R720,000. However, if you switch to a bank offering a lower interest rate of 7%, you could save an impressive R102,000 in total interest over 15 years. Even a 0.5% reduction in your interest rate (to 7.5%) could save you more than R51,000.

What Does Switching Involve?

When you decide to switch your home loan to another bank, it’s like applying for a brand-new loan. You’ll need to go through the same steps as you did with your original home loan, including affordability and credit checks. The new bond will also need to be registered with the deeds office, which has financial and timing implications.

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It’s important to note that switching your home loan involves some costs. You’ll be responsible for the legal charges to switch and register the new bond, including fees charged by a bond registration attorney. These fees are based on the size of your home loan. For instance, the total costs for a R1 million home loan are approximately R32,000. Since you’re switching your loan and not selling a property, there are no transfer costs or transfer duty involved. To get an estimate of your expected legal costs for switching your home loan, you can use our handy bond and transfer cost calculator. Additionally, you’ll need to pay your lender’s loan initiation fee, which is a fixed amount of R6,037. At Nedbank, we offer reduced rates on some of these fees to ensure a seamless transition. If you’re interested in switching your home loan to Nedbank, you can use our ‘call me back’ form to get in touch with our expert home loan sales consultant.

Remember, you may also be liable for early termination and bond cancellation fees from your existing home loan lender. It’s essential to review the terms of your home loan to understand if cancellation fees apply and the notice period required before terminating your current loan.

Other Ways to Benefit from Switching

Before making a decision, it’s crucial to crunch the numbers and compare the savings to the total costs involved in switching your home loan. However, if you can afford to keep paying your original repayment amount every month, even after switching to a home loan with a lower minimum payment, you’ll be able to pay off your new home loan faster, saving even more on interest.

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Another way to unlock the value of your home is by switching to a loan equal to its current value, which should be greater than the amount you still owe. This difference can be used to finance home upgrades. A particularly smart move to save money in the long run would be to use this extra money to switch over to solar energy. At Nedbank, we have a program designed specifically for homeowners who want to reduce their monthly electricity bills through solar energy. For more information, visit our solar energy finance page.

After carefully considering all the costs and benefits, you can determine whether switching your home loan is the right move for you.

For more helpful financial tips, visit Simple Money Tips – Steps To Financial Freedom.