Dimakatso started with the process of applying for a home loan about in mid-June. It has taken her almost 2 months to finally get the home loan because of her high indebtedness. The mortgage originator applied to 4 banks and she was rejected by 3 banks. I informed her that in terms of the National Credit Act, she has a right to request the 3 banks to give her reasons for declining her application in WRITING. Thankfully, the 4th bank accepted her application but they did not give her 100% loan. Also, they put the following conditions for the loan;
- The builder that renovated her home had to give her the NHBRC certificate
- The building plans had to be approved by the municipality
- They wanted a structural engineer’s report confirming that the building was in order
I remember receiving emails from her and I could sense her frustration, fear and sense of hopelessness. She needed 100% loan and she didn’t have enough money to pay for the engineer. She was ready to give up and go the long route of continuing to pay for the personal loans. I reassured her that she could work on meeting the conditions of the bank. I hooked her up with an engineer who helped her with the above, at a fee. I could sense her fear coming up all over again but I insisted. I was not going to let her stay in debt for the next 5 years when she could get out in a couple of months.
I got a surprise and pleasant sms from her a few days ago stating “ I paid R40 000 and closed one of my debts. Soon thereafter, I received notice that one of the banks that had rejected my application has approved my home loan application – I have a 100% loan and interest of 9.2% – subject to inspection” .
Her monthly repayment on the R500 000, 20-year home loan is going to be R4 563.00. She was paying R12 600 for the R334 000 personal loan so she will be saving herself a whopping R8 000 monthly.
She will be settling all her short-term expensive debt and will be left with the repayment on the home loan only. CLICK HERE to remind yourself of how she got into the debt.
To add to her excitement, Dimakatso recently got her driver’s license. She will be buying herself a car as soon as the debts are cleared. Dimakatso’s experience confirms what I always tell people about money i.e. that there are those who struggle financially, not because they are reckless with money but simply because they don’t understand how interest rates work. They use short-term expensive debt instead of long-term, secure and cheap debt. By swopping short term debt and replacing it with long term, secure home loan debt, Dimakatso saved herself R8 000 and will be able to buy a car soon. So next time you need money, check if you could use a refinance loan, re-advance loan or further loan against your home rather than taking a personal loan or consolidation loan.