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Consider your options before fixing your bond's interest rate

By unknown | Sep 05, 2007 | COMMENTS [ 0 ]

Xolile Bhengu

Xolile Bhengu

Considering a fixed interest rate on a bond payment could help cushion hikes and improve budgeting, but it is not a one size fits all option.

Banks said consumers needed to look at their personal affordability to decide on either a fixed or floating interest rate.

The current prime rate offered by banks is at 13,5percent of the value of the home loan. Banks offer term options of 12, 18 and 24 months.

SA Home Loans offers VariFix, a 20-year fixed rate home loan term that does not increase, but decreases during the term in a favourable market.

First National Bank property strategist John Loos said a fixed term did not mean a profit. "It really depends on the appetite for risk of the individual. When people fix their rate it's not about gaining profit, but means limiting cash flow risk.

"If one cannot cope with changing rates, it is worth considering, as you would know exactly what you will pay."

Loos said choosing a fixed rate worked better during a stable market.

SA Home Loans chief executive Kevin Penwarden said the average ownership of property was seven years, which made their product favourable to protection from unpredictable market changes.

He said their fixed rate had an option of fixing between 50percent and 100percent of the bond loan during the term of the bond, which could be adjusted or changed to a floating rate at no extra cost.

Standard Bank director of home loan products Shaheen Adam said a fixed rate generally cost more and could mean an extra 1percent to 1,5percent added to the current bond rate offered by a financial institution.

"However, fixing your interest rate payment can be a key benefit for someone who needs cash flow certainty and budgeting," said Adam.


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