S A Homeloans Versus the Banks
Date: 2006-07-19
In the Weekend Argus dated 10/6/2006, SA Homeloans chief executive, Kevin Penwarden, questioned "how originators can claim that they find you the best deal if originators do not include SAHL on their panel of home loan providers". Let's do a little comparison between the banks and SA Homeloans and you be the judge. Please note the information we're about to divulge has been obtained by speaking directly to a SAHL consultant and visiting their website.
Interest Rates
SAHL offers 4 interest rate options:
1) A variable interest Rate is linked to the JIBAR rate (rate at which financials institutions lend money - bankers ac ceptance rate). This rate is subject to fluctuation every 3 months, commonly known as strike dates. Hence, the rate that is quoted to you at the inception of your transaction will not necessarily be the same rate in 3 months time. Bankers Acceptance Rate tends to lead the market.
2) CAP Rate is set higher than the SAHL normal variable rate. For 2 years, your interest will not be higher than the CAP rate, but should rates decrease below your CAP rate, your rate will be adjusted accordingly. A fee will be charged and this is added to your total loan amount, thereby increasing your monthly instalment.
3) 20 year fixed rate option, which is higher than the existing variable rate. I personally have a serious problem with this option and hope that our Reserve Bank will step in, should more financial institutions start offering long-term fixed rates. My reason for this stron g objection is that, even though I'm not an economist, my logic tells me that when you start financing long-term lendings (mortgage bond) with short-term investments (funding for these mortgage are obtained from investors), something has got to give and in this case it's the property market. The USA mortgage market is financed mainly by securitisation companies like SAHL, where long-term fixed rates are the norm. When interest rates increase, existing homeowners with mortgage bonds are reluctant to sell or obtain further advances, as they will have to renegotiate their new transaction at a higher interest rate. New entrants into the market are reluctant to enter into long-term commitments at the higher interest rate, therefore the whole property market comes to a standstill, causing the market to "crash". The long-term repercussions of this option on the industry far outweigh the individual gain.
4) With the "Supe r-low option" SAHL offers clients a 0.6% discount on the existing variable rate. There are a few terms and conditions to this option (euphemistically termed "customer loyalty"), mainly that the discounted portion of the rate is only refunded as a "cash back" payment at the end of the second year and every subsequent year for a period of 5 years. Thereafter, your interest rate will permanently be discounted by the 0.6%, but more importantly you are not authorised to repay more than 4% of the total loan amount per annum e.g. on a bond of R1 000 000, you are only allowed to repay an additional R40 000 per annum. This tends to put a damper on those of us who wish to maximise the use of this type of liability.
Banks offer only 2 interest rate options namely:
1) A variable rate which is linked to the repo rate. The repo rate is governed by normal economic conditions i. e. inflation (CPX, CPIX and PPI), Rand value, fuel price, national current account status etc. The repo rate has remained constant at an all-time low since April 2005, increasing by 50 basis points in June 2006. To find out more about where repo rate is heading read our article entitled "Understanding Interest Rate Fluctuations". When utilising the service of a good property finance consultant (bond originator), it is unlikely that you will be paying the going prime rate. A discounted rate will be negotiated on your behalf. More often than not, our discounted rates have been lower than SAHL over the past year.
2) Interest rates can be fixed over a period of 12, 18, 24 and 36 months. This term differs from bank to bank. Interest rates are determined by normal economic conditions and internal lending policies. If the market conditions are conducive to a rate increase in the near future you will probably be paying a higher fixed rate than the existing variable rate, but the opposite will also apply. At one stage, banks also offered a capped rate, but this facility was so seldom utilized that most banks have done away with it.
Normal Lending Criteria
If you're self-employed SAHL will only grant you a loan of 85% LTV (loan to value) of the market value / purchase price of the property. Only for salaried individuals are they willing to grant 100% at a higher interest rate. Banks will offer self-employed individuals a 100% loan, with some banks even willing to entertain a 100% bond plus costs.
As at the end of June 2006, SAHL was offering 9.6% (on their "super-low option") on a 75% LTV, and 10.2% on an 85% LTV. I implore all our readers to challenge us to be at these rates.
The banks qualify clients on a repayment to income (RTI = Instalment as a percentage of your income) of 30%, while SAHL will qualify clients on a lower RTI of 25%, and 20% for salaried and self-employed persons respectively, requiring a higher income to qualify for the same loan amount.
SAHL do not offer building or renovation loans.
The access / flexibond facility of the banks is definitely the most convincing difference. With most banks you are allowed to withdraw in multiples of R100, minimum R1 000 as often as you need to. At SAHL you are only allowed to withdraw in multiples of R10 000 six times a year.
SAHL will pay 50% of all your bond registration costs and they don't have a monthly administration fee. The banks charge an administration fee of R5.70 per month on bonds lower than R500 000 and R22.80 on bonds greater than R500 000.
With the introduction of bond originators into the property market, banks have been placed under one roof and close scrutiny, which has brought about many advantages for consumers from more competitive rates to better home loan products. This industry introduces an average of 65% of all home loan clients to the banks. One has to question why SAHL doesn't see the advantage of having access to this client base, by entering into an agreement with bond originators.
We're confident about the products and service we're offering our clients. SAHL is an option. You decide if it's the BEST option.
Tess Rodrigues
Managing Director