Johannesburg - It’s probably too late for homeowners to fix their home loan interest rates at a favourable level.
Property analysts agree: the best opportunity for a homeowner to get an attractive fixed mortgage rate is when interest rates are on the way down.
Interest rates are currently believed to have bottomed and they are expected to start rising later this year.
Fixing an interest rate means that a homeowner with a mortgage loan at his bank agrees to an interest rate that remains constant, despite interest-rate changes announced by the Reserve Bank. The fixed rate offered by banks will generally be higher than the prevailing rate. This fixing will also be valid only for a specified period, usually one or two years.
Jacques du Toit, senior property analyst at Absa Home Loans, said a favourable time to fix rates is when a small margin exists between the variable and the fixed rate. He said homeowners pay a premium for a fixed rate, which can vary from bank to bank.
Factors affecting rates include the consumer’s credit profile and his spending and saving patterns.
He said a fixed rate was therefore inappropriate for a consumer wanting to save money, as his monthly payment would be higher.
In South Africa a relatively small percentage of homeowners with mortgages fix their rates, largely because interest rates in this country tend to be very volatile.
First National Bank (FNB) property analyst John Loos said the purpose of a fixed rate was not to try to beat the market, but rather to have certainty about one’s future cash flow.
He said the decision whether or not to fix rates depended on a homeowner’s appetite for risk and his financial situation. For those without a financial cushion against economic shocks it could be beneficial to fixed rates.
But homeowners need to hurry because interest rates are expected to rise, meaning that a fixed rate becomes less and less attractive. Fixing an interest rate is venturing an economic forecast.Erwin Rode
, property valuer and economist at Rode & Associates, said that in principle it is not a good idea to fix mortgage rates because the likelihood of beating a bank's economist is less than 50%.
Then there is the practical problem of a homeowner having to pay a premium.
He said it is however important for a prospective home buyer to buy a house within his means, so that he has financial manoeuvrability in the event of interest rates starting to rise.
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