Refinancing can be a powerful way to reduce monthly repayments, pay off debt faster, or unlock cash for other priorities. Whether you are looking at your bond or your vehicle finance, the same principle applies: you replace your existing credit agreement with a new one that ideally has better terms. This guide explains how refinancing works in South Africa, when it makes sense, the costs and risks involved, and the exact steps to follow for both home loans and car loans.
What is refinancing?
Refinancing is the process of settling your current loan with a new loan, either from your existing credit provider or a new one. The objective is to improve your overall position. That usually means one or more of the following:
- Lower monthly repayment through a lower interest rate or extended term
- Lower total interest cost by moving to a better rate or shorter term
- Access to equity (cash-out) if the value of your asset has increased and your outstanding balance is relatively low
- Restructuring the loan profile (for example, removing a residual or balloon payment on a car loan, or consolidating short-term debts into a home loan at a better rate)
South African credit agreements are regulated under the National Credit Act (NCA). Any new refinancing application must pass affordability and creditworthiness assessments, and you should expect a full set of documentation and a new contract.
When does refinancing make sense?
Refinancing is not automatically beneficial. Consider it when at least one of these apply:
- Your rate is no longer competitive. If you fixed when rates were high or your variable margin is uncompetitive, a new offer could materially reduce costs.
- Your credit profile has improved. A stronger credit score, higher income, or lower debt-to-income ratio can unlock better pricing.
- You want to change the term. Shortening the term can save interest; extending it can ease cash flow (but usually increases total interest).
- You want to remove risky structures. Balloon or residual amounts on car finance create refinancing pressure later; removing them early can stabilise your future cash flows.
- You need access to equity. For home loans, you may release equity via a further advance or re-advance if your property value and loan-to-value (LTV) allow it.
- Debt consolidation at a lower blended rate. In some cases, consolidating expensive short-term debts into a lower-rate home loan reduces monthly outlay and simplifies repayments. You must weigh this against the longer repayment horizon.
Avoid refinancing if:
- The once-off fees and charges will wipe out most of the savings
- You are near the end of the term and will not recover the costs in time
- Your rate is already very competitive and the “gain” comes only from extending the term (which may increase total interest)
- You plan to sell the property or vehicle soon, thereby losing the benefit period
Refinancing costs to budget for
Refinancing is never free. Some or all of the following may apply. The exact amounts vary by lender, province, and your loan size.
Home loan refinancing costs
- Bond cancellation fee (for your current bond)
- Early termination or notice-period interest if you cancel without adequate notice (many lenders require ±90 days’ notice for bond cancellation)
- New bond registration attorney fees (conveyancing)
- Deeds Office fee for registering the new bond
- Property valuation fee (by the new lender)
- Initiation fee charged by the new lender
- Monthly service fee on the new bond (ongoing)
- Credit life insurance if required by the lender (cost depends on cover and provider)
You do not pay transfer duty when you refinance an existing property without changing ownership. Transfer duty applies when property is acquired, not when a bond is replaced.
Car loan refinancing costs
- Settlement amount to close the current account (includes interest to settlement date)
- Early settlement or administration fee (if charged)
- Initiation fee on the new vehicle finance agreement
- Monthly service fee on the new agreement
- Valuation or inspection (some lenders may inspect the vehicle)
- Credit life insurance if required or chosen
How to calculate your break-even point
Your break-even months tell you how long it will take for monthly savings to recoup the once-off costs.
Break-even months = Total once-off refinancing costs ÷ Monthly saving
Example (home loan):
- Once-off costs (attorney, Deeds Office, valuation, initiation): R22 000
- New repayment saves R1 100 per month
- Break-even ≈ 20 months. If you plan to keep the property longer than 20 months, you benefit thereafter.
Example (car loan):
- Once-off costs (initiation, admin, inspection): R3 000
- Monthly saving: R350
- Break-even ≈ 8.6 months. If you intend to keep the car well beyond that, the saving is worthwhile.
Always compute both the break-even and the total interest over the remaining term under the old versus the new scenario.
Step-by-step: How to refinance your home loan
- Clarify your goal
Decide whether you want lower instalments, a shorter term, equity release, or a combination. - Gather documents
- South African ID
- Latest three months’ bank statements (six if self-employed, plus financials)
- Latest three months’ payslips or income proof
- Rates account and levy statement (if sectional title)
- Existing bond account details and latest statement
- Consent for a credit check
- Check your property value
Request a comparative market analysis or use reputable valuation tools. Lenders will run their own valuation, but a rough estimate helps you target a realistic amount and LTV. - Request a settlement figure and give notice
Ask your current bank for a formal settlement letter and provide bond cancellation notice as early as possible. Notice can reduce or avoid early termination interest that accrues when cancelling a bond. - Shop lenders and compare full quotes
Compare interest rate, margin to prime, term, initiation fee, ongoing service fee, attorney and Deeds Office fees, and any promotional conditions. Evaluate both monthly repayment and total cost over the chosen term. - Run the numbers
Compute the break-even months and total interest saving. If you are consolidating short-term debt into the bond, compare the like-for-like interest cost over the same period to ensure you are not turning a 24-month debt into a 20-year burden without a plan to prepay. - Apply
Complete the application with your chosen lender. Expect affordability assessments under the NCA, a property valuation, and potentially additional supporting documents. - Conveyancing process
Once approved, the lender instructs attorneys to register the new bond and cancel the old one. You will sign bond documents with the attorneys. The attorney liaises with the Deeds Office for registration. - Registration and switch
On the day the new bond is registered, the new lender pays out to settle the old bond. Your old bond is cancelled, and your new account goes live. Adjust debit orders accordingly. - After registration: monitor and optimise
Ensure debit orders run correctly, store your bond documents safely, and consider setting up an extra repayment or access facility discipline to accelerate payoff.
Step-by-step: How to refinance your car loan
- Clarify your goal
Lower instalment, lower total interest, removal of residual/balloon, or a shorter term to pay the car off sooner. - Check your car’s value and current balance
Obtain a realistic trade value (age, mileage, condition) and your settlement figure from the current lender. Identify whether you are in negative equity (settlement higher than market value), which makes refinancing harder unless you contribute a deposit. - Compare offers
Approach your bank and alternative lenders. Compare rate, term, fees, and whether there is flexibility to make extra payments without penalty. - Mind the balloon
If your current deal has a balloon, evaluate refinancing without a balloon to avoid a large final payment. The instalment may rise but your risk reduces substantially. - Apply and supply documents
ID, bank statements, payslips, proof of residence, and vehicle details (VIN, registration, proof of insurance). Some lenders may inspect the vehicle. - Approval and settlement
After approval, the new lender settles your old account; the old account closes. Confirm there are no hold-backs on registration papers or settlement conditions. - Set up the new account
Confirm debit order details, optional insurance products, and consider paying a small additional amount monthly to shorten the term.
What lenders evaluate (home and car)
- Credit score and history: Arrears, judgments, and recent behaviour
- Affordability: Income, existing obligations, debt-to-income ratio
- Asset value: Property valuation or vehicle trade value relative to the loan
- Loan-to-value (LTV): Lower LTVs generally price better and are approved more readily
- Employment stability: Tenure and income consistency
- Documentation quality: Complete, recent, and verifiable
Rate types and structures to understand
- Variable rate (linked to prime): Moves when the Reserve Bank adjusts policy rates. Most SA home and car loans are variable with a margin over or under prime.
- Fixed rate (usually for a limited period): Protects against hikes but may carry a premium and a fixed-term lock-in.
- Access facility (home loans): Allows redraw of extra payments. Excellent flexibility, but discipline is essential.
- Residual/balloon (vehicle finance): Lowers the instalment today but requires a large payment at the end. Only advisable if you plan for it explicitly.
Common pitfalls to avoid
- Ignoring once-off costs. A headline rate cut that saves R400 per month is not a win if you pay R15 000 in fees and sell the asset in a year.
- Extending the term unnecessarily. You may pay more total interest even at a lower rate if you stretch the repayment period.
- Consolidating without a payoff plan. Rolling short-term debt into a bond without increasing instalments can convert a two-year expense into a twenty-year one.
- Not giving bond cancellation notice. For home loans, failure to give adequate notice before cancellation can add penalty interest.
- Refinancing a depreciating asset that is underwater. Negative equity on a car can trap you into borrowing more than the vehicle is worth.
- Forgetting credit life and insurance costs. These add to the real cost. Compare apples with apples.
Practical tips to maximise savings
- Improve your credit score first. Pay on time for at least six months, reduce utilisation on revolving credit, and fix any errors on your credit report.
- Target a lower LTV. Paying a small once-off amount to drop into a better LTV tier can unlock a sharper rate on a home loan.
- Choose the shortest affordable term. This usually yields the lowest total interest.
- Automate an extra payment. Even R300–R500 extra on a car loan, or 5% extra on a bond instalment, can shave months off the term.
- Ask about repricing. Sometimes your current lender will reduce your rate to keep your business, saving you attorney and Deeds Office fees on a home loan switch.
- Time your refinance. For bonds, align with notice periods; for cars, refinance when you have little or no negative equity.
Documentation checklist
Home loan refinance
- ID document
- Proof of residence
- Three months’ payslips and bank statements (more if self-employed)
- Latest bond statement; settlement letter and cancellation notice
- Municipal rates account; body corporate levy statement (if applicable)
- Property insurance details
- Signed application and consent to credit check
Car loan refinance
- ID document and proof of residence
- Payslips and bank statements
- Vehicle registration papers; VIN and engine number
- Proof of comprehensive insurance
- Settlement letter from existing lender
- Application and consent to credit check
Should you refinance with your current lender or switch?
| Factor | Reprice with current lender | Switch to a new lender |
|---|---|---|
| Fees | Lower once-off costs (especially for bonds) | Higher once-off costs (attorneys, Deeds Office for bonds) |
| Speed | Usually faster | Can be slower due to full registration process |
| Rate leverage | May be limited to internal pricing grid | Competitive tension may deliver a sharper rate |
| Convenience | Minimal admin; accounts remain familiar | More admin; new debit orders and systems |
| When ideal | You already have a good rate; you mainly want a modest reduction | You are significantly overpaying; you want new features or a materially better margin |
Frequently asked questions (FAQ)
1) Will refinancing hurt my credit score?
A new application triggers a hard inquiry and a new account on your profile. A single application has a small, temporary effect. Over time, lower utilisation and on-time payments can improve your score.
2) Can I refinance if I am self-employed?
Yes, but expect stricter documentation: audited financials or management accounts, six to twelve months’ bank statements, and possibly higher equity requirements on bonds.
3) Do I pay transfer duty when I refinance my bond?
No. Transfer duty applies when property changes ownership. Refinancing replaces the bond, not the owner.
4) Can I refinance a car with a balloon payment?
Yes. Many consumers refinance specifically to remove the balloon. Your instalment may increase, but your end-of-term risk reduces.
5) How soon can I refinance after taking a loan?
Technically any time, but it is sensible to wait until you have built equity (home) or are not in negative equity (car), and until the savings exceed the costs.
6) Is debt consolidation into my home loan always a good idea?
Not always. The rate may be lower, but you may pay for much longer. If you consolidate, commit to a higher instalment or extra payments to keep the payoff period short.
7) What is the difference between a further advance and a re-advance on a bond?
A re-advance allows you to access extra payments you have already made, while a further advance is a new amount advanced against available equity, subject to valuation and affordability.
Example: bond switch saving vs cost
- Current bond: R1 500 000, 17 years remaining, prime + 1.00%
- New offer: prime – 0.25%, same remaining term
- Once-off costs: R20 500 (attorney + Deeds Office + valuation + initiation)
- Monthly saving from the rate cut: ~R900–R1 200 (illustrative; depends on current prime and exact margin)
If you keep the property for at least the break-even period and maintain the term, you benefit. If you shorten the term by keeping your old instalment, you may save significantly more in total interest.
Example: removing a car balloon via refinance
- Current deal: R300 000 financed over 72 months with a 30% balloon (R90 000)
- 36 months in, settlement is R140 000; trade value is R150 000 (no negative equity)
- New deal: Refinance R140 000 over 36 months, no balloon, modest rate improvement
Outcome: Higher monthly instalment than before, but you eliminate the R90 000 bullet and finish with full ownership and lower long-run risk.
Action plan: your 10-step refinancing checklist
- Define your objective and time horizon.
- Pull your latest credit report and correct any errors.
- Estimate your asset value (property or vehicle).
- Request a formal settlement letter.
- For bonds, give cancellation notice to your current bank.
- Obtain at least three comparable quotes.
- Compare APR-equivalent cost, not only the headline rate.
- Calculate break-even and total interest under both scenarios.
- Proceed with the best offer and complete legal steps.
- After switching, consider small extra payments to accelerate payoff.
Final thought
Refinancing is a numbers game and a paperwork exercise. The numbers must be convincing, and the paperwork must be correct. If your break-even is short, your new rate is sharper, and you plan to keep the asset for long enough, refinancing can deliver meaningful monthly relief and substantial lifetime savings. Approach it methodically, compare total costs, and protect the long-term health of your balance sheet.
Sources
- National Credit Act 34 of 2005 (overview and full text)
https://www.gov.za/documents/national-credit-act-34-2005 - National Credit Regulator (consumer information and credit rights)
https://www.ncr.org.za/ - South African Reserve Bank (monetary policy and interest rates)
https://www.resbank.co.za/ - South African Revenue Service – Transfer Duty (when duty applies)
https://www.sars.gov.za/taxes/transfer-duty/ - Department of Agriculture, Land Reform and Rural Development – Deeds Registration (bond registration and Deeds Office)
https://www.dalrrd.gov.za/Branches/Deeds-Registration - Legal Practice Council (attorney profession and guidance; conveyancing context)
https://lpc.org.za/
William Dube is a finance and economic news expert with over 10 years of experience in economic anaylsis, financial product assessment and market analysis. With a numerous certificates from prestigious universities including but not limited to Yale University and the University of Pennyslivenia. William specializes in providing insightful news developments in South Africa and commentary on investment strategies, risk management, and global economic trends.
You can contact him on william@rateweb.co.za
