More questions are being asked than answered about a little-known company that launched a home loan product this week offering a fixed interest rate of six percent on a 20-year bond.
This is seven percentage points below the current prime rate and 0.9 percentage points below the inflation rate. If you borrowed money at six percent, you could invest it in cash and earn almost three percentage points more.
The very best variable interest rate you can obtain from a bank or home loan finance company is 2.5 percentage points below the current prime rate of 13 percent. The average home loan rate is about 1.6 to 1.7 percentage points below prime, but fixed-rate home loans attract higher rates.
Rudi Visagie, a director of Rudco Finance Company, says that his business model is all about strategy and that "maybe" he has enough money to offer the six-percent rate to 1 000 home loan applicants. He says he does not have enough money to finance the entire home loan market, and perhaps after six months he will change the interest rate Rudco is offering.
The repo rate - the rate at which the Reserve Bank lends money to commercial banks - is 9.5 percent.
Visagie confirmed that applicants who want a home loan from Rudco will have to pay an initiation fee of R5 700 including VAT. This is the maximum initiation fee allowed in terms of the National Credit Act.
Documents from a Rudco agency state that if you want to switch an existing home loan to Rudco, you will have to pay the first two monthly instalments on the new bond to Rudco and continue paying instalments on your existing bond. Only after the second instalment will Rudco start proceedings to switch your bond by requesting cancellation figures from your bank or finance house.
Industry sources say banks can take up to 90 days to provide you with a final home loan settlement figure. This means you could have to make five instalments to Rudco before it grants you a loan and settles your existing bond.
But Visagie denied that this is the case and says instalments will have to be paid only "once you sign a mortgage contract".
Visagie confirmed that Rudco offers agents R1 000 for every bond they sign up for Rudco, as well as commission of 10 percent of each instalment paid during the life of the bond.
According to industry sources, bond originators usually earn a one-off amount of between one percent and two percent of the bond for securing a bond for a financing company. This would amount to significantly less than Rudco's ongoing payments.
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