To Fix or Not to Fix - MY HOME LOAN

[julies]

Hi Everyone

Whats your opinion on Fixing the Interest rate on a Home Loan.

I had a look on some of the historical data on the SARB website and the prime lending rate has dropped from about 15.5% in 2008 to 9.5% in 2014.

https://www.resbank.co.za/Research/Rates/Pages/SelectedHistoricalExchangeAndInterestRates.aspx

I am considering fixing my rate, even if its just on a portion of my home loan, whats your opinion ?

Do you think the Rate will drop again in the near future ?

Regards

[Houses4Rent]

I never fix the bond rate. My thinking is that the banks are better equipped to look into the crystal ball and they will never offer something which could be unfavorable to themselves. So the likelihood that you score is slim.

[Richard S]

I must agree with Houses4Rent. If the time is right to fix rates, the banks research will already have anticipated the future moves and will lock you into something that is to their benefit, not yours. Whatever the bankers tell you, remember that this is their bread and butter and they are interested in their their own bottom line, not yours and mine. Having said that, I personally see far more chance of rates hikes than drops, but who am I to say, when the banks have teams of people studying the markets on a daily basis. You and I cannot compete with that, we can only gamble, and that has not worked well for me in the past!

[julies]

Ok so what you guys are basically saying is, If I had to approach my bank to fix my rate they would most likely want to fix it at a higher rate than my current rate.

[HR Solutions]

Ok so what you guys are basically saying is, If I had to approach my bank to fix my rate they would most likely want to fix it at a higher rate than my current rate.

Yes definately - always works that way

[Dave A]

As has been suggested before, the prospects of "beating the bank" and saving money may be against you, but there are times and reasons when fixing your rate could still be a good idea.

The main reason to consider this is to assure affordability of instalments, which in turn implies a couple of factors should be present -
1. You're close to your affordability limit, and run the risk of default if there's an interest rate increase
2. Interest rates are unstable, or a significant series of interest rate increases seems likely.

Right now it's a tough call to read, I reckon. The potential for a blow-out in interest rates definitely exists...

[Houses4Rent]

Here is a plan:

Lets say your current rate is 10% and your installment is R10000. Ask your bank what rate they offer if you fix it. Lets assume that is 11% which translates to an installment of R11000. You can afford that. Now do not fix the rate and still pay the R11000 anyway. If the rate goes up to 11% or less keep paying the R11000. You will still be ahead as you overpaid for a while. If the rate goes over 11% and you cannot afford more than R11000 you would normally be instantly in trouble. But since you are ahead you have some time to make a plan before your "credit" is used up. The other effect it that you are reducing the balance outstanding faster than planned and save on interest.

And if you have a savings account or any other paper asset which performs below inflation or at least below your interest rate of your home loan cancel them all and pay them into your home loan. That is most often the best "reverse" interest investment of all. Just make sure you have an access bond so you can draw overpaid amounts again at will.