Standard Bank has introduced an innovative way of pricing new home loans.
It expects the pricing will result in lower monthly home loan payments as the loan is repaid. The effective interest rate will also reduce with every payment, resulting in huge savings over time, according to a statement issued by the bank.
This breaks the traditional single interest rate customers have typically received over their 20 to 30 year terms.
Andrew Van der Hoven, head of Standard Bank Home Loans says this new pricing is designed to reward clients for every payment they make on their journey to owning their home.
How this will work is that the loan will be broken up into up to three portions, with each portion of the loan being priced individually at a lower rate. As the loan is paid off a higher portion of the loan will be at the lowest rate on the account.
"With this structure as the client pays off their loan they will pay less interest and a lower interest rate. The true value of our pricing however is in the real additional monthly cash flow it can provide as well as the total interest the client will save” says Van der Hoven.
"In order to benefit from the lower rate our clients can also make extra payments whenever they have additional funds, this is an alternative to the typical home loan where you only receive an interest rate benefit if a deposit is paid upfront. Having a deposit is good financial practice but it’s not always possible for many buyers at a point in time, this new structure allows those customers to benefit when they have saved enough."
The product is also suitable for homeowners who wish to take up a loan option that enables them to cut the term of their loan while enjoying an interest rate benefit.