Great alternatives to fixed rates

With interest rates at historic lows, many homeowners are contemplating whether or not to fix their bond rates.
While economists – and homeowners – widely expect interest rates to start rising early next year if not later this year, pegging bond rates to a fixed level is not necessarily the smartest option right now, says Martin Schultheiss, CEO of property group Harcourts Africa.
“Banks usually offer fixed rates at one or two percentage points above prevailing levels, which means that homeowners who exercise this option will be paying a higher rate until interest rates catch up. And if rates do not rise quickly, homeowners paying a fixed rate will be out of pocket,” he cautions.
At the current rate of 10% the monthly payment on a R750 000 bond over 20 years, for instance, would in the region of R7250 but by fixing the rate at, say, 12%, the required payment would jump to about R8250, Schultheiss explains.
“That’s an extra R1000 per month while rates stay at 10% - and in the unlikely but not impossible event that rates decline further, homeowners with a fixed rate stand to lose even more.
“A much more profitable option would be to use the extra R1000 in the example above to reduce the capital on the bond by voluntarily paying it into the bond account each month.  Not only would that reduce the term of the bond and total interest payments, but it would create a tidy buffer over time that would act as protection against sudden hikes in rates or other unforeseen circumstances such as financial hardship. And above all, it remains flexible and in the sole control of the homeowner.”
Schultheiss adds that it is good policy in any event to pay an additional amount into the bond account every month. “For instance, in our example above the homeowner would pay off his bond in about 14 years and save a whopping R325 000 in interest if rates remained at 10% and he paid an additional R1000 into his account each month.
“Of course rates will fluctuate, but homeowners will win handsomely in the end by adjusting voluntary additional payments accordingly, if at all possible,” he says.
New buyers can also protect themselves against rate increases, says Schultheiss, by limiting their exposure. “There are two ways to do this. Buyers can either pay bigger deposits to limit the bond amount, or buy more modest property at a lower price and use the ‘savings’ to pay off the bond faster and benefit from the reduced interest payments.”

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 23 Nov 2017
      Reserve Bank Governor, Lesetja Kganyago, said that the Monetary Policy Committee had once again decided to let the interest rates remain unchanged with the repo rate at 6.75%, and the prime lending rate at 10.25%.
    • 23 Nov 2017
      As the holiday season approaches, most of us are counting the days until that year-end bonus hits our account. There’s nothing quite like a little bank balance booster to get us in the holiday spirit.
    • 23 Nov 2017
      The Adelphi Centre (now entitled “ARTEM") in Sea Point, Cape Town, is being extensively renovated, and once complete will offer an ultra-luxurious galleria style shopping centre unlike any other seen on the Atlantic Seaboard or in Cape Town.
    • 23 Nov 2017
      If you are looking to sell your home in today’s real estate market, there are certain things that you need to include both inside and outside your house. Today’s generation of home buyers is looking toward a more eco-friendly, energy and water conscious home, and if your house stands out then you are more likely to be able to sell it.
    • 22 Nov 2017
      Most people know of the Community Schemes Ombud Service (CSOS) and that levies must to paid to fund its operations. In this article the experts at Paddocks will address some of the issues that are causing confusion.
    • 22 Nov 2017
      While sales have noticeably slowed in most sectors in most Cape town suburbs, the security estate sector in Constantiaberg has bucked the trend by remaining buoyant, with sales by August this year already surpassing total sales in 2016.
    • 22 Nov 2017
      The end of the year is fast approaching, and so are all the travellers, tourists and holidaymakers. For those who live near or own a property in a holiday-hotspot, the festive season also brings with it an abundance of short-term rental opportunities. Its a great way for property owners to make a few extra rand for their own holidays or to put towards their savings.
    • 21 Nov 2017
      The buying process is over, and the moving truck has delivered your household goods to your new property. Now it’s time to unpack and turn your new house into a home.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us