What are the advantages and disadvantages of switching your mortgage bond to another bank.

Lake Properties                    Lake Properties

Lake Properties                    Lake Properties  

1. Lower interest = real savings.
   A lower interest rate reduces your monthly repayment and the total interest paid over the life of the bond.

2. Immediate monthly cashflow relief.
   Lower repayments free up money for living costs, investments or paying down higher-cost debt.

3. Better product features & flexibility.
   You may gain access to benefits like free extra repayments, offset/savings accounts, redraw facilities, or more flexible payment dates.

4. Consolidate / clean up finances.
   Refinancing can let you roll expensive short-term debt (credit cards, personal loans) into the mortgage at a lower rate (but be careful — you extend the term).

5. Access to equity (“cash-out” refinancing).
   If your property value has risen, you may be able to increase the loan (and take cash out) for renovations, an investment, or debt consolidation.

6. Service and digital experience.
   You might prefer another bank’s online tools, customer service or speed of handling bond queries.

⚠️ Disadvantages — the downside (expanded)

1. Upfront switching costs (real money).
   Typical costs include: bond cancellation fees, new bond registration costs, conveyancer/attorney fees, bank admin fees, bank valuation fee, and possible early settlement penalties from your current lender. These all add up and reduce net savings.

2. Breakage/early termination penalties (if fixed rate).
   If you’re on a fixed-rate product, leaving early can trigger significant breakage fees—sometimes larger than you expect.

3. Paperwork, checks and delay.
   You’ll need payslips, proof of ID, bank statements, the new lender will do a credit check and property valuation — it’s effectively a new bond application.

4. Possible reset of loan term (costly).
   If you extend the loan term to lower the monthly amount, you often pay far more interest over the longer term — a short-term gain for a long-term cost.

5. Approval is not guaranteed.
   The new bank must be satisfied with your credit, affordability and the property valuation. If they decline you, you’ve still incurred valuation or admin costs.

6. If you plan to sell soon, you may never recoup costs.
   If your break-even period is longer than the time you intend to keep the property, switching is usually not worth it.

How to decide — step-by-step (do this before signing anything)

1. Get the redemption figure from your current bank.
   Ask for the outstanding balance + exact cancellation fees and any early settlement penalties. You need the final figure they’ll require.

2. Get a full written quote from the new bank.
   The quote must include new monthly repayment, interest rate (fixed/variable), valuation fee, attorney fees, admin fees and any other one-off charges.

3. Calculate monthly savings and break-even months.

   • Monthly saving = (current monthly repayment) − (new monthly repayment).
   • Break-even months = (total switching costs) / (monthly saving).
     If break-even is shorter than the time you expect to stay in the house, that’s a good sign.

4. Compare total interest over the remaining term.
   Don’t only look at monthly payments — calculate total interest you’ll pay at each rate over the remaining term (or the new term if you change it).

5. Check non-monetary items.
   Contract flexibility, ability to make extra payments, how interest is applied, insurance/cover changes, online banking quality, and customer service.

6. Negotiate with your current bank first.
   Ask them to match the new offer. Often they will reduce the rate without you having to pay switching costs.

7. Factor in life plans.
   Are you selling or moving in two years? Are you planning big changes (start a business, have children)? If short horizon, be conservative.

Practical checklist — what to request & prepare

• Statement of outstanding balance and full redemption figure (including cancellation fees).
• Recent bond repayment schedule (how many months left, term).
• New bank’s written quote (full list of fees + monthly repayment).
• Documentation: ID, 3 latest payslips, 3-6 months bank statements, proof of address, latest bond statement.
• Ask for a copy of the new loan agreement to read early.
• Confirm whether your home and life insurance transfers automatically or need reissue.
• Check whether the new bank requires a new valuation and who pays for it.
• Ask whether the new repayment includes interest-only period options, extra payments and whether there are penalties.

Sample negotiation text you can use

“Hi [Bank name], I’ve received a formal offer from [competitor bank] with an interest rate of X% and total switching costs of R[xx]. I’d prefer to stay with [current bank]. Can you match or beat this rate, or offer a lower admin fee to avoid switching? Please send me your best written offer.”
(Short, polite, and gives them a concrete target to match.)

Worked examples (so you can see the math)

Below are illustrative examples (use these as templates for your own numbers). These are examples only — plug in your actual outstanding balance, rates and fees.

Scenario A — clear win (example numbers):

• Outstanding balance: R1,200,000
• Remaining term: 20 years (240 months)
• Current rate: 9.5% p.a. → Current monthly repayment ≈ R11,185.57
• New rate: 8.0% p.a. → New monthly repayment ≈ R10,037.28
• Monthly saving ≈ R1,148.29
• Switching costs (estimate) = R25,000 (attorney + valuation + admin)
• Break-even months = 25,000 ÷ 1,148.29 ≈ 22 months (≈ 1 year 10 months)
• Total interest remaining at 9.5% ≈ R1,484,538; at 8.0% ≈ R1,208,947 → Net saving over term after switching cost ≈ R250,590.

Interpretation: if these numbers reflect your case and you plan to stay more than ~22 months, switching looks attractive.

Sensitivity checks (why these matter):

• If switching costs were R40,000 instead, break-even becomes ≈ 35 months.
• If the new rate was only 8.8% (smaller improvement), monthly saving drops to ≈ R543 and break-even with R25,000 jumps to about 46 months (nearly 4 years).
• If you only have 5 years left on the bond, the monthly saving is smaller and you might not recoup costs — switching becomes less attractive.

(Those precise numbers above are calculated from the standard mortgage formula: M = P × r / (1 − (1 + r)^−n), where r is monthly rate and n number of months.)

Things people often forget (gotchas)

• Valuation fee — the new bank may require a fresh valuation. This cost is sometimes refundable if the bond registers.
• Insurance changes — changing banks can change the way house or life cover is handled; double-check continuity.
• Prepayment/excess payment rules — some banks limit extra repayments or charge fees to make big extra payments in early years.
• Credit checks — a hard credit enquiry can slightly affect your credit score. Multiple credit applications in a short period can be harmful.
• If you refinance to borrow more (cash out), your monthly repayment may increase and you may pay more interest overall. Don’t treat the mortgage as free money.
• Contract language — read the fine print about penalty events, what counts as default, and whether you’re tied to bundled products.

When it’s usually worth switching

• The new rate is materially lower (not just a decimal point) and your expected stay > break-even time.
• You can secure useful features (offset account, extra payments) that align with your plans.
• You don’t have large fixed-rate breakage penalties.
• You’re consolidating very expensive debt into mortgage debt and understand the long-term implications.

When it’s usually not worth it

• You plan to sell or move within a few years and break-even is longer than your stay.
• You’re on a fixed product with heavy breakage penalties.
• The monthly saving is small relative to switching costs (e.g., you’d save R200–R300/month but pay R30,000 in fees).
• You need to take extra cash out that wipes out the savings.

Quick decision formula (make it simple)

1. Get all costs (old bank cancellation + new bank fees) → Total switching cost.
2. Get current monthly payment and new monthly payment → Monthly saving.
3. Break-even months = Total switching cost ÷ Monthly saving.
4. If break-even < planned time to stay, consider switching; otherwise don’t.

Final practical tips

• Always ask your current lender to match the best offer — often it’s cheapest to stay and keep the relationship.
• Get every fee in writing from the new bank before you proceed.
• Do the math with exact numbers (redemption figure, exact fees) — approximate guesses can mislead.
• If in doubt, run a worst-case (higher fees, smaller rate drop) sensitivity check to see how robust the decision is.

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Lake Properties Pro-Tip: Don’t let a “nice sounding” lower headline rate be the only factor — always do a side-by-side total cost comparison (monthly payment, total interest over remaining years and switching fees). If the break-even point is longer than the time you realistically expect to live in the property, walk away — otherwise negotiate hard with your current bank first.

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