Does the current historic low interest rate present a fixing opportunity for consumers?
Category News
Does the current historic low-interest rate present a fixing opportunity for consumers?
I never advise clients to sign a fixed rate with the banks. In my opinion, it is like paying a fine without doing anything wrong. As soon as you sign a fixed rate with the bank they give you a higher interest rate than on a variable rate. The advantage of signing a fixed rate with the banks is knowing that your rate and bond repayments would be the same for the fixed period.
What I recommend is to keep an eye on the interest rates and as soon as it starts to climb you could consider fixing your interest rate.
See this informative article from Private Property:
"Does the current historic low-interest rate present a fixing opportunity for consumers?
With lower rates, those that do have to pay off loans to the bank are undoubtedly better off and certainly many would like to use this windfall to their advantage. That is the reason why many are considering 'fixing' the interest rates on their loans.
Most South African banks are currently prepared to fix the rate of their clients' mortgage loans at a certain level. In the current environment of low-ish interest rates, it may make sense for borrowers to consider fixing their mortgage rates.
Typically, when an interest rate is "fixed," it will be for a limited period of one to five years. This implies that when a rate is fixed, it is usually fixed between 150 to 300 basis points - that is 1.5% to 3% - higher than the current rate a client is paying. That means that short-term interest rates will have to fall by an additional 150 to 300 basis points or more, and rather soon, for a client to break-even should he/she decide to fix his/her rates.
So, the question to fix or not to fix depends on the level and the duration at which you can fix the rates. You first have to confirm with your bank which fixed rate it will offer, and for how long. Typically, banks will fix a home-loan rate for a maximum of five years.
Fixed rates offered by the bank vary on a regular basis, and depend on a number of factors, including the outlook of the bank on the future movement of interest rates. Customers, therefore, cannot choose which rate to fix at, but can ask to be quoted on the rates available at any given time, and select whether to fix at the offered rate then, or not.
Also, the longer you want to fix the rate for, the higher the rate on offer will be.
The downside, however, is that "locking yourself into a fixed rate for say three or five years, is that there is a chance that interest rates could remain low or fall even further over that time, leaving you paying more than you otherwise would have."
Author: Kobus Erasmus