Fixing your home loan
interest rate certainly does have advantages.
Your monthly bond repayment does not fluctuate with change in the rate of
interest.
This will enable you to accurately forecast your future cash flow needs,
providing a certainty for establishing costs and budgets. This is also a wise
choice to make if you’re unable to afford sudden hikes in the rate that would
otherwise affect your bond repayment.
However, if interest rates are expected to fall you would be doing yourself a
disservice by entering into a fixed agreement. Being fixed at a higher rate than
what the market is currently enjoying will ensure that you will pay more for
your home over the long-term.
A variable rate may fluctuate and your associated repayments will adjust
accordingly, increasing or decreasing with whatever changes are made to the
interest rate.
Before making the decision it is prudent to have some knowledge of the rate
expectations for the foreseeable future. If rates are predicted to rise then a
fixed rate is clearly the better option. But if the interest rate is expected to
drop reasonably fast it would be unwise to become locked into a fixed
arrangement. However, a slower fall in the interest rates may prompt you to fix
your rate but only for a certain period.
Most banks will not allow you to enjoy the benefit of a reduced interest rate if
you have undertaken to fix your rate for a certain period. Nevertheless, you may
make a formal request and it is entirely at the bank’s discretion whether or not
you will be allowed to revert to a flexible rate. On the other hand, banks are
usually willing to allow change to a fixed rate agreement for existing customers
who have previously enjoyed a variable rate of interest.
One of South Africa’s primary mortgage providers offers a product called the
Varifix Home Loan. Home owners are able to fix their rates for up to 20 years
and rest assured that they will never make a higher repayment than what is
currently being paid. In addition to this, owners may choose whether to fix
their entire home loan or just a portion thereof. The fixed rate is reviewed
every 5 years and if market rates have fallen then the home owner’s rate is
reset and is fixed at the lower rate of interest. However, in the case of higher
interest rates within the market, the home owner can remain assured that his
interest rate will never rise above the lowest rate at which his interest was
initially set.
In having a fair idea of the expected market changes that would affect interest
rates, it is wise to remember that this will always be a volatile environment
and not all predictions may come to fruition. But, ultimately, the decision on
whether to fix or not to fix is one that will always be based on the individual
needs and capabilities of each home owner.
you.
DISCLAIMER: The information contained in this article is the opinion of the
Author and should not be taken as advice. The Author is NOT registered to give
any type of Financial Advice and is not associated with a Bank or Finance
Company. The information in this article has not been verified and may be
inaccurate or incorrect.