Home loan Interest Rates 101

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Buying a house is one of the biggest decisions in life and, albeit an exciting one, it is not to be taken lightly especially when it concerns home loans, lending rates and repayments.

 

Here is a lowdown of everything you need to know about interest rates:

 

Personal interest rate

A personal interest rate is as unique as a home and the individual who buys it. It is determined using a number of criteria and is based on the client’s risk profile. Interest rate is one of the key costs to consider when comparing home loans.

 

Prime lending rate, prime minus and prime plus

The prime lending rate is currently 10% and is effectively the starting point that banks use to calculate interest rates for clients. It covers the bank’s basic profit margin, which is then set higher or lower based on the applicant’s risk profile. A riskier individual would get an above-prime loan, which would be at prime plus, for example, prime plus 1% making it a lending rate of 11%. A low-risk client could get prime or lower, for example prime minus 1%, which means a lending rate of 9%.

 

What determines interest rates?

The prime lending rate is a marked-up version of the repo rate. The repo rate is the interest rate commercial banks pay to borrow money from the Reserve Bank. At the moment it is sitting at 6,5%.  By raising or lowering the repo rate, the Reserve Bank makes it more or less expensive for commercial banks to borrow money. This in turn affects how affordably they can lend money to consumers and this determines the prime lending rate.

 

The repo rate changes according to economic climate. Higher interest rates make borrowing money more expensive thus deterring people from making big investments, so there is less money circulating in the economy which slows down inflation. To kick start a sluggish economy, interest rates are lowered to encourage investment.

 

If the repo rate goes up, prime goes up and the amount you pay on your bond increases. If the repo rate goes down, prime goes down and those savings are passed on to you. For example, if your bond is prime plus 1% and the lending rate climbs from 10% to 10.65% then your monthly instalments on your bond increase, and vice versa if prime decreases.

 

A lower interest rate means more affordable monthly repayments as well as substantial savings on the total cost of your home over the lifetime of the bond. If there is a hike in interest rate however, it could significantly affect your cash flow as your bond repayments would increase.

 

Fixed interest rates

Banks also provide the option of a fixed interest rate home loan structure, usually for a specific length of time of up to five years. This means that the interest rate doesn’t fluctuate during the fixed rate period, allowing you to accurately predict and plan for future payments as you will know exactly what your repayments are.

 

Usually, consumers fix their interest rate if they believe that the interest rate cycle is on an upward trajectory. This said, the decision to fix a home loan interest rate depends on individual circumstances and should be a carefully considered option. It is ideal for consumers who own multiple properties as the stable rates would buttress against future rate hikes. The disadvantage of this option is that it could result in the homeowner missing out on savings should the Reserve Bank decide to switch to an interest rate reduction cycle.

 

At the end of the day, interest rate must work in your favour and fit in with your financial profile. Do your research and speak to a financial consultant and bond originator before deciding on a home loan option. EV Financial Services is well placed to assist you in obtaining the best interest rate for your home loan.

Property Scams

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Our lives have been made considerably easier with technological advances such as the internet. Unfortunately it has also opened up a world of opportunities for con artists. As automation improves, so does the level of property scams, and while every precaution is taken, there will always be yet another way that fraudsters discover to deceive buyers and sellers out of large sums of money.

Fraud and investment scams thrive in all degrees in the real estate market, from developers who expect payment for work not done or a pretend agent who embezzles money. Working with a legitimate estate agent at your side will ensure that you will be protecting yourself against common types of real estate scams. When dealing with an agent, buyers and sellers must check that the agent is registered with the Estate Agency Affairs Board and has a valid Fidelity Fund Certificate. It’s illegal for an agent to practise if they are not in possession of this important document. These certificates are issued on an annual basis and must reflect that the agent is licensed to practise for the current year. Always obtain certainty on the banking details were payments or deposits are being made.

 

We single out the most predominant property scams you may encounter while searching to buy or rent property.

 

Intercepted Emails 

This involves scammers, hacking into the email of people involved in the transactions, such as agents or lawyers, by tricking home buyers into wiring funds to them instead of the appropriate parties. They often will use a generic email address indicating that the funds should be wired to a specific account which will then vanish without a paper trail.

 

Changes made regarding payment details must always be done by the seller in person if possible, or telephonically verifying the email, and not via email alone. Protect yourself by double checking everything, verifying all emailed instructions that deal with the purchase even if they’re from trusted parties, any bank detail changes need to be accompanied by the required verification of the bank accounts in question.

 

Fraudsters posing as a Buyer

They will approach a seller privately and show keen interest in the property and put in an offer. After a few days, the supposed buyer will contact the seller asking for a document to be signed to help them get their home loan approved, which the seller then signs without reading too much of the document only to discover later that a third party claims to have bought the home.

 

It will be found that the scam artist (the first buyer) has been marketing the home online as an agent, by taking the photos off various websites, and has found a buyer who is also unaware that something is wrong – and who might have paid a large deposit over to the supposed agent. Make sure you check every detail when it comes to property sale transactions, documents can be falsified and email addresses cloned.

 

Identity Theft

Criminals have become much more experienced and are using stolen identity details not only to empty bank accounts but to obtain various credit accounts and even home loans. They are able to delay detection of the fraud for long periods while the unpaid bills and instalments mount up. The scammer will use false documents to pose as the property owner, register forged documents transferring a property to their name, and then get a new mortgage against the property. After securing a mortgage or line of credit, the criminal takes the cash and disappears.

 

Bait and Switch Scheme

This occurs when a prospective buyer offers an ‘above market value’ price to a seller. The seller, impressed by the high offer signs the contract, meanwhile the deceitful buyer has no intention to purchase the property. Once the seller signs the contract, the seller may only sell to that buyer for a specified time, when that time ends the fraudster asks to extend the contract a few weeks to work out closing details. Sounding reasonable, the seller agrees to the extension blinded by the high offer.

 

In the meantime the seller keeps paying taxes, maintenance, utilities and insurance the buyer comes back to the seller with an excuse as to why this price no longer works, and requests a reduction to below market value and threatens to cancel if their demand is not met. Stressed by time and on-going costs, the seller agrees to the reduction.

 

Duplicated Listings

‘Agents’ copy legitimate rental listings and advertise for a much cheaper price. Unfortunately, many people fall for these fake listings and wire money to the owners of these fake listings. When searching for a rental, do your research and make sure you are working with a reputable company or agent.

 

Fake Rental Agents

When you find a property you really like, you call the agent to arrange a viewing and they say they will meet you there. Later they call and say they won’t be able to make it anymore, but no need to worry the landlord will be there to show you around. The agent then promises to negotiate a lower price with the landlord. When you arrive at the house you find many other people interested in renting the same place. You call the agent back to negotiate a better price that you’re happy with; they will phone you back shortly to inform you of the new price, all you have to do is transfer the money for the first two months to secure the place. On moving day, you find someone else is moving in and the agent wasn’t an agent; they just found the property online and reposted it with their own contact information. They purposely send several people at a time to view the property to generate a sense of urgency for the potential renters.

 

Avoid becoming a victim

  • Be wary when you are requested to make a payment for something minor like a credit check or security deposit, in most cases, there’s nothing you can do to get your money back because the scammer can’t be tracked.
  • If the price looks too good to be true, it probably is. Prices are considerably higher than they were a few years ago.
  • The email sounds strange – some listings hide the email address when you send a message, so you might not be able to see the address if you respond to the listing. Scammers usually use free email servers and they’ll often go by a series of random letters to make them less easily traceable.
  • The Agent won’t show you the property – If you ask to see the property and they claim it’s impossible, it’s probably a fake listing. Agent will make time for people who are interested in the property.
  • The seller pushes you – the faster a scammer gets you to agree to a business deal, the faster they can steal your money and avoid getting caught. The seller will often use high-pressure tactics that attempt to push you into acting quickly in order to purchase the home. Don’t be prodded by any seller to send money.
  • The seller asks you to wire money – when you see the term “wire money” or similar variation of that phrase come up in a business conversation with someone you’ve never met, red flags should go up. Many scams entail wiring of funds because it’s more difficult to trace and enables the scammer to collect the money sooner. Scammers will come up with a variety of plausible reasons why the money should be wired rather than sent through a bank or lawyer.
  • The buyer or seller is foreign and wants to buy a home unseen – most people want to at least see a property and become familiar with the area before making a large investment. This doesn’t mean you should be wary of all foreign inquiries, but many scams often occur overseas because it’s harder to trace the person behind the fraud. Foreign buyers who don’t ask questions, act in haste, and don’t care to see the property indicate a high likelihood of fraud.
  • Be well informed about market related prices within the area you are looking to rent or buy. If a property is advertised way below the market related price for that area it should raise your concerns.
  • If you found a “bargain” online you should call the estate agency to find out if the deal is for real. Don’t call the number at the bottom of the ad because this number could lead to a fake office. Rather find the actual office number, call there and ask the receptionist to give you the number of the specific agent or branch you are looking for.
  • Be wary of agents and landlord who seem too eager or pushy to get you to live in their property or one they are marketing. A legit agent or landlord will always conduct the necessary checks and will not be too disappointed when you don’t show much interest in the property.
  • If the agent is constantly making up excuses as to why they are not able to meet you or show you the property, you should also be worried. The chances are good that they don’t have access to the property and are stalling for time until they can think of a clever way to get you to pay the deposit.
  • Never pay a deposit before you have viewed a property.

When dealing with an agent, buyers and sellers must check that the agent is registered with the Estate Agency Affairs Board and has a valid Fidelity Fund Certificate. It’s illegal for an agent to practise if they are not in possession of this important document. These certificates are issued on an annual basis and must reflect that the agent is licensed to practise for the current year. Always obtain certainty on the banking details were payments or deposits are being made.