Home Loan

Generally, there are three types of home loans in South Africa and each type is primarily characterized by the dynamics of the interest levied on the mortgage. As far as home loan interest is concerned, you can use a home loan calculator to determine how much interest you are expected to pay. However, where or not you can reduce the interest on the loan depends on the type of home loan you take. Keep reading to learn more.

Three Types of Home Loans in South Africa

1. Variable Interest Home Loan

This is the most common type of home loan in South Africa and like the name suggests, the interest on the loan can vary over the life of the mortgage. Hence, the monthly payments on the loan can go up or down along with the market interest rate.

2. Fixed Rate Home Loan

This type of home loan is the opposite of a variable interest loan. In this case, the interest rate on the loan remains the same (unchanged) over the duration of repayment.

3. Capped Home Loan

This type of home loan is similar to a variable home loan. However, there is a cap that restricts how high the interest rate can rise. In simple terms, the loan has a maximum interest limit which can’t be exceeded under any conditions irrespective of how aggressively the interest rates fluctuate over the life of the loan.

Irrespective of the home loan you take up, there are four effective ways to reduce your interest.

How to Reduce Home Loan Interest    

Improve Your Credit Score

Your credit score greatly affects your lending capability as well as the minimum amount of interest you are expected to pay on a loan. The better your credit score, the lower the interest rates the lender will allow. Hence, you should strive to improve your credit score before taking on a home loan so as to enjoy minimal interest rates.

Make a Large Deposit

If you can manage to make a substantial down payment towards the cost of a home, it will minimize the amount you need to borrow against the home. As a result, you will take up a smaller home loan meaning the interest on the loan will be less than what you could have paid had you borrowed the entire sum for the home. Plus, you get to minimize the total payments you make as well as the lifespan of the loan which further reduces interest.

Pay Extra When You Can

The longer a loan lasts the more you pay in overall interest. If you occasionally come into some extra money, you can put it towards the repayment of the home loan. Hence, if you make extra payments regularly, you quickly yet gradually reduce the balance owed which translates to reduced interest.

Use Home Loan Calculators

Every reputable lender has an online home loan calculator. You can use these calculators to compare the best home loan deals online, enabling you to pay the least possible interest over the life of the home loan.