Nov
2012
Banks in South Africa ensure that the interest rates on home loans are as competitive as possible – while there is a limit to how low they can ‘discount’ interest rate offerings. For home buyers ‘shopping’ around for the best available home loan product it does pay to remember this when considering where to apply for financing for your home.
Ironically, when applicants apply to multiple banks for home loans they may unwittingly increase the cost to themselves and others. Consider the fact that assessing and processing these applications requires the employment of skilled labour for this specific purpose, and that the costs are incurred by the bank whether the loan application is successful or not. At the end of the day these costs are covered by those clients who end up taking up a loan with the bank. These costs will be paid out of initiation and interest charges in order to pay for the wastage of time and labour.
Thus potential buyers increase the overall cost of processing applications when they consider more than one bank, and banks are faced with the challenge of attempting to reduce these processing costs by increasing the amount of loans that are taken up with their own bank. One way that banks seem to handle this is to prefer to approve home loans from existing clients. Take into account that processing applications of a client already banking with the institution is less costly than from an applicant that has to obtain banking statements and proof of income from another bank.
Applicants who do the majority of their transactional banking at the same bank that holds their mortgage account are more likely to be granted better default rates than those who go elsewhere for their home loans for these reasons. The trend is steadily moving towards banks declining to even process applications from customers that don’t bank with them, leaving buyers with fewer viable options.
The advantages then of applying to one’s main transactional bank for a home loan are then fairly self-evident in the fact that processing of the clients’ bank records and assessment of credit-worthiness is much less risky and costly than doing the same for someone who banks elsewhere. As a result of this more applicants seem to end up taking out their home loans with their own bank as it is the more cost-effective option.
Further, many banks will offer special products and rates should you use your home loan and cheque account in conjunction with one another, aiding you in reducing interest payments on your home loan account. Clients may often also apply for further credit once they have applied for their home loan, and having all your banking accounts at one institution as they may well qualify for better interest rates on subsequent credit or loan applications. The bank will also be better able to assess your needs and affordability should you do all your banking in one place, and be better equipped to assist clients with the appropriate amount of credit to avoid high levels of debt that they cannot afford.
At the end of the day however, it is the applicant’s choice and prerogative to find the best possible home loan or complimentary product to suit their needs and their pockets.
