First-time buyers should beware the interest rate trap

If you are a first-time buyer looking for property to buy in Durban, you need to be aware of the fact that the smallest loss of concentration in your pursuit of your new home could cost you.

This relates specifically to the interest rate that is mentioned in your home loan agreement, and not paying attention here could literally turn your good deal into a bad one.

The interest rate will directly impact the repayment amount each month, and over the course of 20 years, this can escalate into a mammoth figure.

To give you a visual representation of this, imagine taking a home loan for R500k and getting an interest rate of 13%. This will see you pay just short of R6000 per month on your home loan. If you reduced that rate by 2% though, your saving would be about R700 monthly. That is not bad from the outset, but over the 20 years of repaying the home loan, you would end up saving over R160k in interest.

This is quite alarming to find out, and showcases why it is so important that you spend some time discussing this factor with your banker.

Most people will not even question their interest rate, but banks are open to negotiating, especially if you have a solid credit score. To understand what your credit history looks like, you should get your free credit report, which is available to you once a year at no cost, and see what your risk factor is.

Another option is to increase the amount that you put down as a deposit. This might not be something you wanted to do, but sacrificing a little more now could actually make a major difference in years to come.