Standard Bank has introduced an innovative way of pricing new home loans from April 2019. The pricing will result in lower monthly home loan payments as the loan is repaid. The effective interest rate will also reduce with every payment, resulting in huge savings over time! This completely breaks the traditional single interest rate customers have typically received over their 20 to 30year terms.
Andrew Van der Hoven, head of Standard Bank Home Loans says; “as the leading home loan provider in South Africa, we believe strongly in fulfilling our purpose of helping South Africans own a home. When looking at our current home loan offering we felt that it could be better aligned to this purpose. This new pricing is designed to rewards clients for every payment they make on their journey to owning their home. We believe that home ownership is vital to wealth creation and we want to be part of that journey.”
How this will work is that the loan will be broken up into up to three portions, with each portion of the loan being priced individually at a lower rate. As the loan is paid off a higher portion of the loan will be at the lowest rate on the account.
For example, in the case of a bond for R 1 000 000 over 20 years the price will be as follows:
The portion of the loan between R 800 000 and R 1 000 000, will have an interest rate of 10.50%
The portion of the loan between R 600 000 and R 800 000, will have an interest rate of 10.25%
The portion of the loan between R 0 and R 600 000, will have an interest rate of 10.00%
“With this structure as the client pays off their loan they will pay less interest and a lower interest rate. The true value of our pricing however is in the real additional monthly cash flow it can provide as well as the total interest the client will save” says Mr. van der Hoven.
In this example the client will pay approximately R2,800.00 less in the first year of the loan and over the course of 20 years this client will save over R67 000 in interest when compared to a traditional single rate loan.
“In order to benefit from the lower rate our clients can also make extra payments whenever they have additional funds, this is an alternative to the typical home loan where you only receive an interest rate benefit if a deposit is paid upfront. Having a deposit is good financial practice but it’s not always possible for many buyers at a point in time, this new structure allows those customers to benefit when they have saved enough” says Mr. van der Hoven.
In summary Standard Bank’s new pricing on home loans benefits participating homeowners in four ways, these are:
The interest rate reduces as the loan is repaid. The customer is not stuck on the single rate for the life of their loan anymore..
The minimum monthly instalment decreases as the loan is paid off.
Significantly less interest is paid throughout the loan term.
Customers are rewarded with a lower interest rate if they deposit additional funds anytime during the term
The product is also ideal for homeowners who wish to take up a loan option that enables them to cut the term of their loan while enjoying an interest rate benefit.
“We believe that our new pricing promotes healthy financial management and increases home ownership through rewarding our customers to pay off their loan” concludes Mr. Van der Hoven.