Should you switch your bond to another bank?

Switching your bond to another bank is worth doing when the new rate is at least 0.5% below your current one and you plan to stay in the property for more than about three years. Below that, the switching costs — a fresh bond registration, attorney fees and possible early cancellation penalties — usually outweigh the saving.

Why the opportunity exists

Most people accept whatever rate their bank offered when they bought, and never revisit it. But your circumstances change. If you took a bond five years ago with a thin credit record and no deposit, and you have since paid down capital, built equity and maintained a clean record, you are a materially better risk than you were. The rate you were given then does not reflect the borrower you are now.

Doing the arithmetic

Take your outstanding balance, your current rate and your remaining term. Work out the monthly repayment at your current rate, then at the rate you are being offered. The difference, multiplied by the months remaining, is your gross saving.

Then subtract the switching costs:

• New bond registration fees — the new bank registers a fresh bond, and you pay for it. Scales with the bond amount, plus VAT.
• Bond cancellation fees at your existing bank.
• Early termination penalty — banks require 90 days’ notice of cancellation. Give less and you are charged interest penalties on the shortfall.

On a R1 million bond, budget R25 000 to R35 000 in switching costs. If your saving comfortably exceeds that within two to three years, switching makes sense.

Give the 90 days’ notice

This single step saves most people several thousand rand. The moment you are seriously considering switching or selling, put the notice in writing to your bank. It costs nothing, it is not binding, and it starts the clock. If you do nothing and then cancel, you pay penalty interest.

Try your own bank first — then test it

Ask your existing bank to review your rate. They may improve it to retain you, which avoids switching costs entirely. But do not accept the first number without knowing what the market would offer, or you have no idea whether it is a good deal.

The other reason people switch

Accessing equity. If your property has appreciated and you have paid down capital, refinancing can release cash for renovations, education or settling more expensive debt. Consolidating a 20% personal loan into a bond at 10.5% is often sound — but only if you do not then run the other debt back up, and only if you accept that you are securing that borrowing against your home.

Run your current balance and rate through the repayment calculator, then compare against what we can obtain. Ask us to test your rate — it is free, and if switching does not make sense we will tell you.