Budget better with fixed-rate loans
- 03 May 2011
Lower-income families and those on fixed pensions should now seriously consider fixing the interest rate on their home loans.
That’s the advice of Rudi Botha, CEO of leading mortgage originator Betterbond, who notes that while most banks will charge a higher rate on fixed-interest loans, these do enable borrowers to budget with more certainty.
“And this is especially important for certain consumers, such as those living on a set income, first-time buyers and lower-income families, who don’t have the flexibility in their household budgets to be able to absorb a series of increases in their home loan repayments when interest rates start to rise.
The reason for his concern at this time, he says, is that many economists are currently revising their earlier predictions that interest rates would not start rising again until next year, and forecasting that the first increases could take place in the last quarter of 2011.
What is more, the next round of increases is expected to take prime and variable mortgage rates from the current 9% to at least 11,5% in 2012.
The main drivers of rising interest rates, Both says, will be rising oil prices because of the internal conflicts in many oil-producing countries, and rising food prices because of the natural disasters such as floods and droughts that have cut production in many parts of the world, including SA.
“Indeed, in its latest Financial Stability Review, the Reserve Bank says these two supply-shock factors are already affecting the economic and inflation outlook in many countries that import oil and food, and that a higher inflation outlook could soon necessitate ‘monetary tightening’ – or higher interest rates.
“But rather than wait for the axe to fall, vulnerable borrowers should fix their rates now. They will pay a premium, but it is likely to be less pf premium than when rates are already on the rise.”
ISSUED BY BETTERBOND