Real Estate Investor Magazine South Africa December - January 2014 | Page 36

BONDS

BY MEGAN TAYLOR

Fixed Or Variable

Which interest rate is best for your bond?

A

ccording to Rhys Dyer, CEO of ooba,
South Africa’s biggest bond originator,
the South African Reserve Bank isn’t
likely to increase the lending rates for most of
2014. That’s good news for homeowners, but
should they be leaping to fix their interest rates
at this low level?
“Given that the current interest rates are at a
four-decade low, and this looks set to continue,
fixing your interest rate at this time may not be
favourable,” Dyer says. He explains that when
you fix your interest rate on your home loan, it
is normally fixed at a rate that is higher than the
interest rate you would get if your home loan
was on a normal variable interest rate. “If you fix
your rate now, on the assumption that interest
rates remain low for the next 12 months, you
would be losing out on the benef its of the
current low interest rate environment,” he says.
Generally the interest rate offered by banks is
based on the size of the home loan taken by the
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applicant. In the past, home loan applicants
could sometimes get interest rates from the
banks that were below prime, however in
today’s market, a good interest rate is the
prime rate of 8.5%, largely due to the fact that
the current level of the prime rate is already
remarkably low. A variable rate is linked to the
prime rate and fluctuates with any changes in
the rate, resulting in a proportional change in
the interest that the homeowner will pay. If
the rate is cut the homeowner will benefit from
the cut and pay less, however they will also be
subjected to the full impact of any increase in
the rate as well.
Adrian Goslett, CEO of RE/MA X says
that fixing the rate will give homeowners the
benefit of knowing what their instalment will
be over a fixed period of time, irrespective of
the change in prime interest rate, however this
does come at a co