Should I choose a Fixed or Variable South African Home Loan interest rate?
SA Mortgage Tips:
With interest rates on the increase the question of whether to fix you home loan rate has once again been raised. With interest rates expected to increase by a further 0.5% the number queries about fixed rate as increased sharply.
Despite the fact that weâ€™ve seen two rate hikes already this year, Mortgage Experts are still favouring the Variable Home Loan rate option. The reason for this is simply because economists are not forecasting huge rate hikes in the near future.
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As a home loan customer you can choose to have either a variable or fixed interest rate charged on your mortgage.
Variable â€“ if you choose this option your bond repayment will increase and decrease as rates up or down. With this option the banks usually offer you a home loan interest rate that is about 1.5% below prime.
Fixed â€“ if you choose this option you bond repayment will not be affected by any changes in the prime interest rate. Although, the banks will usually offer you a Fixed rate that is about 2% or 3% higher than the variable rate option.
Most banks offer fixed terms of up to 24 months, but Nedbank is currently offering clients the opportunity to fix their home loan rates for up to 5 years.
Only about 5% of all home loans issued by the major banks are on fixed rates the reason for this can be seen in the following example.
If you have a current variable interest rate of Prime less 1.5% (currently 10%). You will be able to fix your bond for 24 months at a rate of 12.5%. This means that interest rates have to go up a total of 5% in 2 years in order for you to ‘break even’. There arenâ€™t many economists out there who are predicting that.