The current low interest rate environment provides potential homeowners with an opportunity to take advantage of a fixed interest mortgage rate, which can effectively save them thousands over the long term.
According to Eleanor van der Merwe, Inland Regional Sales Manager at ooba, South Africa’s leading bond originator, now is the time to fix your home loan rate. She says that the current prime interest rate of 9% is at a 30 year low, and although some economists are predicting that rates will stay unchanged or possibly drop further, the general sentiment is still that South Africa will move into an upward interest rate cycle next year.
Van der Merwe explains that the main advantage of having a fixed home loan rate is that home owners can budget with a degree of security knowing that rate increases over the contract period will not affect their ability to meet their debt obligations. “Fixed rate home loans provide peace of mind and security to borrowers, knowing that they don’t have to worry about future interest rate rises.”
She explains that that in order to qualify for a fixed rate the home loan in question will need to have been registered, as a fixed rate will not be quoted by a bank prior to registration.
Banks are at the moment offering fixed interest rate mortgages on a prime plus basis as it costs them to hedge the interest rate risk. “A lender’s fixed interest rates for a 24-month term currently range from 9.3% to 11.5%. Home owners are usually prepared to pay a slightly higher interest rate for the added security and knowledge that their repayments cannot increase during the term of the fixed rate agreement. Usually the maximum term for a fixed interest rate is two years.
“Home owners currently on a variable rate can change to a fixed rate option on condition that their home loan repayments are not in arrears. If the loan is in arrears, the arrear payments will have to be rectified before applying for a fixed interest rate.”
She says that when considering a fixed interest home loan, potential home owners should conduct a sensitivity analysis on what interest rates increase they are able to absorb. This will deduce if the fixed rate is a suitable option. “A careful assessment with a professional advisor and the comparison of options will verify if the home owner will benefit from a fixed rate,” she concludes.