Gamification of home loans gains traction as South Africans hunt for better deals

The practice of bond-switching is gained traction in South Africa, spurred by factors like the digitisation of financial processes and the current high-interest-rate environment, says Clive Bredenkamp, IT executive at proptech specialist e4.

Bond-switching typically refers to the process of transferring a mortgage bond from one financial institution to another, often with the aim of securing more favourable terms such as lower interest rates or better repayment terms.

In an interview with Moneyweb, Bredenkamp said that new entrants into the market, including the likes of Discovery Bank and Capitec are offering innovative products and leveraging technology to attract customers.

Discovery Bank recently unveiled its home loan offering, noting that customers can pay up to 1% less on their interest rate "when you manage your money well and include your other Discovery products".

"It goes up in increments of 0.125% and 0.2%, so there’s a lot of gamification around how invested you are with the bank," said Bredenkamp. "These new lenders are really looking to gamify a home loan – and that’s specifically around the rate."

“I think these emergent banks are also offering better platforms versus a lot of the traditional banks which have their traditional systems; they’re on a journey to digitise and improve efficiencies.”

While historically, switching bonds may have been cumbersome and costly, advancements in technology and streamlined processes are making it easier and quicker to do so.

Banks are also becoming more willing to absorb associated costs, recognising the long-term value of attracting and retaining customers through bond-switching, said the proptech expert.

A new lender will assess the homeowner's creditworthiness and property value to determine the terms of the new bond.

Once approved, the new lender will settle the outstanding balance with the existing lender, and the homeowner will begin making payments to the new lender according to the new terms.

“What it involves is that a bank literally buys out the debt from another lender," said Bredenkamp.

Costs Involved: While bond-switching can potentially lead to savings in the long term, there are associated costs such as administration fees, legal fees, and possibly penalties for early termination of the existing bond.

It's essential for homeowners to weigh these costs against the potential savings to determine if bond-switching is financially beneficial.