On a bond of R400 000 at an interest rate of 10.5% paid over 20 years, your total finance charges would be R592 765.
A 1% cut in your interest rate would result in R525 257.80 finance charges, or a saving of R67508 (11.3%).
It would therefore be beneficial to refinance your mortgage at another bank, if you could get a decent rate cut. This is where mortage originators play a very important role, since they have the power to negotiate even better rates.
I arranged the finance for our first home myself, and I did not get a lower interest rate. When I purchased my new home a couple of months ago, I made use of a mortgage originator, and they were able to arrange for a loan at prime less 1.7%. Many people would qualify for even lower rates (I’ve heard of banks willing to go as low as prime less 2.25%, but that is exceptional. Lowest you could usually expect is prime less 2%).
Now, for the fun part…
If you calculate your bond payment at the current prime interest rate (example 10.5%), and you are able to get a lower rate after switching your home loan you could save even more. Simply keep paying your bond as if you were paying your previous rate.
Using the R400 000 example again, your payment at 10.5% would be R4 238.95. At 8.5% it would only be R3684.63, but if you were to keep your installment at R4 238.95, you would be paying an extra R554.32 per month (which you would not have had if you did not switch). Doing this would shorten the term by 64 months (more than 5 years) and would save you R138 256.00 (or 23.32%) in fees.
One more tip that nobody ever tells you about is to make your first payment on the day of registration (instead of waiting a month or so). That alone would save about R18 423 or shorten your term by another 5 months.
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