{"id":1107,"date":"2020-12-15T12:57:19","date_gmt":"2020-12-15T10:57:19","guid":{"rendered":"https:\/\/wealthymefs.co.za\/?p=1107"},"modified":"2020-12-15T13:00:16","modified_gmt":"2020-12-15T11:00:16","slug":"why-do-home-loans-abroad-have-lower-interest-rates-than-in-south-africa","status":"publish","type":"post","link":"https:\/\/wealthymefs.co.za\/?p=1107","title":{"rendered":"Why do home loans abroad have lower interest rates than in South Africa?"},"content":{"rendered":"\t\t
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You just found out that your friends who live abroad took out a home loan with an incredibly low interest rate, allowing them to settle the balance reasonably soon.<\/p>\n\n\n\n

However, if you take out a home loan in South Africa, you can expect a hefty interest rate by comparison. We find out why there\u2019s such a big difference between countries.<\/p>\n\n\n\n

Tip: Find out what kind of interest rate you can expect for a home loan by <\/em><\/strong>clicking here<\/em><\/strong><\/a>.<\/em><\/strong><\/p>\n\n\n\n

The impact of inflation on home loans<\/strong><\/p>\n\n\n\n

According to Reagan Mitchell<\/a><\/strong>, managing director at WealthyMe<\/a><\/strong>, federal or reserve banks generally adopt a monetary policy which targets the rate of inflation.<\/p>\n\n\n\n

\u201cEmerging and developing countries tend to have a higher rate of inflation than advanced economies. Higher inflation could be the result of fast-growing economies, resulting in excess demand for goods and services. This causes exchange rate volatility,\u201d says Mitchell.<\/p>\n\n\n\n

He points out that emerging and developing countries\u2019 currencies often depreciate against the currencies of advanced economies, which translates into higher prices for imported goods.<\/p>\n\n\n\n

\u201cAs of October 2020, the inflation in the United Kingdom is 0.7% versus 3.1% in South Africa. By virtue of this, the interest rates on home loans will be higher in South Africa than in the UK,\u201d says Mitchell.<\/p>\n\n\n\n

He explains that commercial banks across the globe borrow money at a set rate from their respective federal or reserve banks. To this, they add a margin when lending to a consumer.<\/p>\n\n\n\n

\u201cThe Bank of England\u2019s base rate is 0.10% versus 3.5% for the South African Reserve Bank. This means you can get a home loan in England priced at under 3% versus north of 7% in South Africa,\u201d says Mitchell.<\/p>\n\n\n\n

READ MORE: <\/em><\/strong>Is a home loan a great savings tool?<\/em><\/strong><\/a><\/p>\n\n\n\n

Costs to consider when taking out a home loan<\/strong><\/p>\n\n\n\n

Mitchell advises that when planning the purchase of a new home, you need to consider all associated upfront costs, as well as recurring monthly costs.<\/p>\n\n\n\n

\u201cYou may need to pay a deposit on the property as well as property transfer costs. First-time buyers often don\u2019t have this money available and end up borrowing. This, in turn, increases the recurring installments,\u201d says Mitchell.<\/p>\n\n\n\n

He points out that in South Africa, the number one financial goal for consumers is to buy a home, therefore planning financially for this is crucial.<\/p>\n\n\n\n

\u201cIt\u2019s prudent to plan in advance for big purchases to avoid unnecessary loans to front the initial costs. Set a goal, research the area you want to live in, do your calculat<\/strong>ions<\/strong><\/a>, and then put together a savings plan. Don\u2019t focus only on monthly home loan repayment. There\u2019s more to consider,\u201d says Mitchell.<\/p>\n\n\n\n

These additional costs include:<\/p>\n\n\n\n