Bond Interest Rates – factors influencing your bond rate
Securing the biggest bond at the lowest interest rate is dependent on a range of factors relating to the bond applicant's age, income, credit record and overall financial profile. Below, My Bond Quotes identifies and discusses some of the key factors influencing your bond rate, and also provides advice on how to get a lower interest rate on bonds. To get quotes on bonds at some of the lowest interest rates available in South Africa, click here.
Factors influencing your bond interest rate
Although the following is by no means an exhaustive list, the following factors influence the interest rate at which bonds are granted to prospective homebuyers.
Bond interest rate factor No.1: Your credit record
Your credit history is one of the most important factors influencing the interest rate at which your bond will be extended – or whether your bond application will be successful at all. When it comes to credit risk assessment, past performance is statistically proven to be a good indicator for measuring future performance, and prospective homebuyers would do well to look after their credit records.
Defaulting on debit order payments or bouncing cheques are almost guaranteed to negatively impact on your credit record. If you're contractually committed to repaying debt or monthly instalments on rent or clothing accounts, it is advisable to pay these without missing a beat. Even if you are ahead of your payment schedule, defaulting on even one monthly instalment is still bound to count against you. Bond companies prefer lending to people with stable income and regular financial habits – especially when it comes to the repayment of debts.
Buying a property of any size is a major commitment, and a sound financial management track record will stand you in good stead when it comes to securing the biggest home loan at the lowest interest rate.
Bond interest rate factor No.2: Your age
Your age will play a role in determining the risk in lending you money. Bonds are classically not the type of debt that one pays off over a short period of time, and the ideal bond customer will be someone capable of affording 20 or 30 years worth of monthly bond repayments, statistically speaking.
Being too young may also increase the statistical lending risk, resulting in a higher lending rate or an outright refusal of your bond application. In many instances, however, common sense should give you a fair indication as to whether you are ready to make such a large financial commitment: Are you financially secure? Is your job stable? Will you be happy to stay put in one place for the next five years? Answering these questions should give you a fair indication whether you're ready to enter the property market or not.
Bond interest rate factor No.3: Your occupation
As a form of credit, bonds present a measure of lending or credit risk to the financial entity extending the loan. Consistency of income is a big consideration when it comes to determining whether a prospective homeowner will make a good bond client or not. Stable, salaried employees tend to qualify for home loans more readily than freelancers or seasonal workers. If you are self-employed, your revenue and consistency of cash flow will also be important considerations.
The NCA: Protecting South African credit users against over-extension
Given the fact that bonds generally don't feature insignificant loan amounts either, lenders tend to err on the side of caution when calculating bond affordability, rather than run the risk of a repayment default. However, rising interest rates and unscrupulous credit usage was contributing to a general and worrying trend: South Africans were living beyond their means.
The National Credit Act, or NCA, was thus enacted, essentially to protect South African consumers from their own dangerous spending and credit usage habits. In essence, the act requires that credit users cannot opt for debt that commands more than approximately 30% of their gross salaries. Although this Act caused a substantial slowdown in both vehicle and property sales figures during 2007 and 2008, it has nonetheless equipped the consumer to deal with rising interest rates more readily.
Ethical bond companies cannot grant prospective homebuyers a bigger bond amount than they can readily afford – but that isn't to say that they can't optimise their underwriting processes and origination processes in order to offer homebuyers lower origination fees and lowwer bond interest rates! In a cooling property market, it would make sense to offer more competitive bond interest rates and origination fees – and the ooba bond experts are doing just that!