VariFix, the new 20-year fixed rate home loan
VariFix is SA Home Loansâ€™ (SAHL) innovative 20 year fixed rate mortgage product. VariFix allows new and existing home owner the opportunity to fix part or the full mortgage for a maximum term of 20 years.
SAHL are the only mortgage providers in South Africa to offer 20 year fixed rates. The benefits of VariFix is that you can choose to fix your home loan rate now to protect it from future interest rate hikes while still benefiting from any possible rate decreases.
At first appearances it may seem is if youâ€™re getting the benefit of both worlds – protection from further rate hikes and benefiting if rates decrease â€“ but economists point out that unless youâ€™re expecting a major interest rate hike in the near future, this is not a wise option.
Finance Expert’s Warning:
Speaking to Person Finance in Aug 2005 financial Planner, Greg Sneddon explained that if SAHL is prepared to offer a 20-year fixed rate, they are not doing it out of the goodness of their hearts.
The average rate for the new 20-year fixed bond is about 2 or 3 percent higher than the variable interest rate that SAHL currently offers.
â€œIf I can afford to fix my bond at about three percent above my current rate, then why not increase my current repayments by this amount right now and benefit fully from this, as opposed to waiting for rates to increase by three percent before I even begin to break even?â€
The difference in monthly repayments on a R300 000-bond over 20 years between an interest rate of 9.1 percent and the expected rate of 12 percent for the Varifix product is R584 a month.
â€If I increase my current repayment by that amount (which I would have to do if I were to opt for the fixed rate), the effect of the additional R584 per month would mean that I would only pay R210 387 in interest, as opposed to R352 440 and would effectively wipe out my bond in just over12 years instead of 20 years,â€ said Sneddon.
Kevin Penwarden, chief executive of SA Home Loans, explained that depending on interest rates over the long term, consumers who opt for the fixed rate would gain significantly, and in others, they would get no gain at all. It is up to future customers to determine their appetite for insurance against interest rate volatility.
SAHL – New Home Loan Product Launched