As South Africa’s largest home loan provider, it is important to us that you understand how the fees and interests rate of your home loan account work. To help you to manage your account better, we’ve put together a short guide on how interest rates and fees work and how they affect your home loan.
Interest is the cost of borrowing funds from a lender and is charged to cover the cost and risk of lending money as well as to compensate the lender for the use of their money in the purchase of your home. The interest rate is usually expressed as an annual percentage and is calculated daily on the amount owed. The interest charged is added to your account monthly and a portion of your monthly repayment is used to repay the interest charged. Your interest rate is personalized and will depend on how well you have managed your finances in the past as well as whether you can reduce the risk to the lender. The higher the risk of lending, the higher the interest rate will be and the more you will have to pay to own your home
Your personalized interest rate is determined using the following information:
Your credit record and payment behaviour (A good credit record indicates good financial management and reduces the risk of losses being incurred by the lender)
The deposit you are willing to pay (A deposit shows good previous financial management allows you to share the risk with the lender)
The relationship you have with the lender (A lender with which you have accounts will have additional insights on how you manage your finances)
Your willingness to move your relationship (Taking up additional products allows the bank to get to know you better)
The amount of debt you have (A high amount of debt relative to your income indicates that you may be highly impacted by interest rate increases or unexpected life events)
The property use (The use of the property changes the risk as it is more difficult to sell a property with a specialised use such as a guesthouse)
If you are purchasing the property in your own name (Juristic entities such as Trusts or companies increase the risk to the bank as these entities can dissolve prior to the loan being repaid)
There are certain aspects which a lender is prohibited by law from pricing by such as race, religion, ethnicity etc. These factors do not determine the interest rate charged on a home loan.
Since pricing is risk based all the variables that go into to the calculation are unique per customer, asset and loan parameters. It is therefore extremely difficult to compare customers rates with each other without knowing the underlying characteristics. However, should 2 customers exhibit the same risk and loan characteristics their interest rate pricing would be identical.
Managing rising interest rates
Home loan interest rates are linked to the repo rate, which is the benchmark interest rate at which the South African Reserve Bank lends to registered banks. This rate in turn impacts the rates at which banks lend money to you, an increase in the repo rate will increase the interest rate as well as the minimum repayment charged on your home loan. Similarly, A decrease in the repo rate would have the opposite effect on your minimum repayment.
To understand the impact of changing interest rates on your monthly Home Loan instalments, you can use our home loans calculator.
However, it is important to know that Standard Bank will not charge a higher interest rate than originally agreed to unless you enter into a new or amended agreement (typically if you take further lending). If you do not want changes in the repo rate to affect the interest rate charged on your home loan, you can enter into a fixed rate agreement of up to 3 years.
Understanding your fee pricing
Standard Bank charges an initiation fee (once off) and a monthly service fee. All customers receive pricing communication once yearly 30 days before pricing changes take effect. Monthly fee pricing can change depending on changes that are made to your account. Our annual pricing guide details these scenarios. You can also look at your biannual statement to review all fees charged to your account.
Tips to help you paying your home loan off sooner and save on interest
Increase your monthly repayment to above the minimum repayment.
Over time you will save a substantial amount on the interest charged.
Reduce the term of your loan.
A term reduction increases the repayment amount and reduces the interest charges on your account.
Use your AccessBond facility.
Put additional savings in your AccessBond facility and use it when you need it. Interest is calculated on a daily basis, so you save on interest for every day additional money is placed in your AccessBond.