Fixed or Variable Home Loans


Fixed or VariableOnce again the question is raised: Should you fix home loan or should you keep your mortgage rate variable?

Every year this question is asked and since the mortgage industry is ever changing it will continue to be raised – especially when there is an expected change in interest rates.

Most economists are predicting that the reserve bank is about to raise the prime lending rate which means that the overall interest rates will increase.

If the rates are raised you can expect to pay more per month on your bond repayments, although if your home loan rate is fixed you’ll be safe. The monthly bond repayments on a fixed mortgage remains unchanged despite what interest rates are doing.

Let’s consider the facts:
• Interest Rates are currently at their lowest point for more than decade
• Most banks have lowered their lending criteria, which means that many more home loans have been issued recently.
• The number of home loan providers has increased dramatically over recent years, and competition for a share in the SA home loan market has offered many home owners the opportunity to lower their mortgage rate by switching their bonds.

Generally, one would opt for a fixed mortgage rate if you expect the interest rate to increase over the next few years. But fixed rates are usually at least 1% or 2% higher than the current rate, and therefore interest rates will have to increase by more than 2% for the next few years if you wish to make a saving by fixing your rate.

If you were able to secure a really good mortgage rate it may not be smart to fix your rate since many do not foresee a huge increase in rates.

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