Home loans – it’s in your ‘interest’ to do your homework
The longer the loan period, the bigger the influence a change in the interest rate will have on the payments.
Interest on credit is nobody’s friend, which is why it is always in your best interest to negotiate the most favourable rate, particularly on a big-ticket item such as a home loan.
This is the sentiment of Carl Coetzee, CEO of BetterBond, who explains that making an informed decision about the interest rate you’re committing to, whether fixed or variable, is a crucial part of purchasing a property.
With a variable interest rate, the interest charged on the outstanding balance of the loan varies in accordance with changes to the market interest rate.
A fixed interest rate on the other hand sees the rate of interest charged on the loan amount remaining unchanged for the duration of the loan/fixed period.
A variable interest rate is linked to the prime lending rate as determined by the Reserve Bank, which means that changes in the prime lending rate will cause your interest rate to go either up or down.
In South Africa, a fixed interest rate on a home loan is determined by the bank or financial institution, independent of the prime interest rate.
While this offers a sense of stability for lenders who can’t afford even slight fluctuations in their monthly repayment amounts, fixed rates tend to be around two percent higher than variable rates.
Other factors that must be taken into account include the total length of time it takes to pay off a loan. The longer the loan period, the bigger the influence a change in the interest rate will have on the payments.
Mr Coetzee said at the end of the day the decision is less about preference and more about a person’s financial situation.
“A bond is a big deal, which is why it is crucial to work with experts who are adept at ensuring the best deal for you,” he concluded.
HAVE YOUR SAY
Like the South Coast Herald’s Facebook page, follow us on Twitter and Instagram
