To fix or not to fix

JOHANNENSBURG (April 10) - Fixed home loan rates became popular in 1998 when homeloan rates catapulted to 23,5% and the prime lending rate reached an extreme high of 25.5%.

Financial institutions offer fixed-rates on home loans for which the interest rate is predetermined for a certain period of time and does not vary in line with the Reserve Bank’s repo rate. Deon Lessing, marketing director of Betterbond, provides insight on fixing homeloan rates.

“The main benefit of fixing a homeloan rate is the certainty that it provides for the homeowner,” says Lessing. Some homeowners prefer having peace of mind with regard to their monthly bond repayments and a fixed rate means that they are better able to budget for expenses.

Lessing says that homeowners can benefit from fixing their interest rate, but that it is imperative they know when to fix their rate and also be aware that banks may charge a penalty to switch from a variable interest rate loan to a fixed rate loan.

The obvious disadvantage of fixing homeloan rates is if the interest rate drops below the levels at which the homeowner’s loan is fixed.

“If interest rates are forecast to rise, a fixed rate is the better option, and if rates are expected to drop quickly, then one shouldn’t be looking into a fixed rate. However if interest rates are expected to drop slowly, the homeowner may benefit from fixing their rate for a short period of time.” says Lessing.

Lessing recommends that homeowners not fix their homeloan rates for longer than a 12 month period as the fixed rate option may not be terminated prior to the expiry of the agreement. After the fixed rate term expires, the rate will revert back to a variable interest rate, unless the homeowner decides to renew the fixed rate option at a rate offered at the time of negotiating. “It is essential that homeowners monitor the variable interest rate fluctuations in order to prepare themselves should the variable rate at the end of the fixed rate period be much higher than the fixed rate,” says Lessing.

“Before making any decisions homeowners should vigilantly assess their risk tolerance as well as their ability to cope with repayments in the event of interest rates increasing. The more conservative a homeowner is with taking risks, the more a fixed rate homeloan may suit them. They should also take into consideration how they prefer to structure their finances as a whole,” Lessing concludes.

INTEREST RATE CHANGES 1986 – TO DATE
HOMES LOANS AND PRIME LENDING RATE

DATE OF CHANGE

HOME LOAN RATE

 

 DATE OF CHANGE

 PRIME LENDING RATE

1 DECEMBER 85

17,75%

 

24 JANUARY 86

15,50%

1 JULY 86

17,00%

 

12 MAY 86

14,50%

1 OCTOBER 86

16,00%

 

25 AUGUST 86

14,00%

1 JANUARY 87

15,00%

 

24 SEPTEMBER 86

15,50%

1 APRIL 87

14,00%

 

30 DECEMBER 86

12,00%

1 MARCH 88

13,50%

 

24 JANUARY 87

12,50%

1 JULY 88

15,00%

 

25 JANUARY 88

13,00%

1 OCTOBER 88

16,00%

 

10 MARCH 88

14,00%

1 DECEMBER 88

17,00%

 

5 MAY 88

15,00%

1 FEBRUARY 89

18,00%

 

29 JULY 88

16,00%

1 MAY 89

18,75%

 

3 NOVEMBER 88

18,00%

1 JULY 89

19,75%

 

28 FEBRUARY 89

19,00%

1 DECEMBER 89

20,75%

 

8 JUNE 89

20,00%

1 APRIL 91

19,75%

 

11 OCTOBER 89

21,00%

1 NOVEMBER 91

20,00%

 

2 APRIL 91

20,00%

1 MARCH 92

19,00%

 

1 OCTOBER 91

20,25%

1 JULY 92

18,00%

 

28 MARCH 92

19,25%

1 SEPTEMBER 92

17,25%

 

25 MAY 92

18,25%

1 DECEMBER 92

16,75%

 

25 NOVEMBER 92

17,25%

22 FEBRUARY 93

16,00%

 

22 FEBRUARY 93

16,25%

15 NOVEMBER 93

15,25%

 

1 NOVEMBER 93

15,25%

28 OCTOBER 94

16,25%

 

26 SEPTEMBER 94

16,25%

23 MARCH 95

17,25%

 

25 FEBRUARY 95

17,50%

3 JULY 95

18,25%

 

3 JULY 95

18,50%

29 APRIL 96

19,25%

 

29 APRIL 96

19,50%

20 MAY 96

20,25%

 

20 MAY 96

20,50%

1 JULY 96

19,25%

 

1 JULY 96

19,50%

1 OCTOBER 96

19,00%

 

1 OCTOBER 96

19,20%

21 NOVEMBER 96

20,00%

 

21 NOVEMBER 96

20,25%

1 NOVEMBER 97

19,00%

 

1 NOVEMBER 97

19,20%

10 MARCH 98

18,00%

 

10 MARCH 98

18,25%

17 JUNE 98

20,00%

 

17 JUNE 98

20,25%

4 JULY 98

22,00%

 

20 JUNE 98

21,25%

 

 

 

25 JUNE 98

20,25%

 

 

 

30 JUNE 98

22,25%

 

 

 

4 JULY 98

23,25%

 

 

 

14 JULY 98

24,00%

29 AUGUST 98

23,50%

 

29 AUGUST 98

25,50%

12 SEPTEMBER 98

24,00%

 

19 OCTOBER 98

24,50%

19 OCTOBER 98

23,00%

 

9 NOVEMBER 98

23,50%

15 DECEMBER 98

22,75%

 

7 DECEMBER 98

23,00%

11 JANUARY 99

22,00%

 

11 JANUARY 99

22,00%

1 MARCH 99

21,00%

 

12 FEBRUARY 99

21,00%

15 MARCH 99

20,00%

 

15 MARCH 99

20,00%

26 APRIL 99

19,00%

 

26 APRIL 99

19,00%

25 JUNE 99

18,00%

 

25 JUNE 99

18,00%

14 JULY 99

17,50%

 

14 JULY 99

17,50%

2 AUGUST 99

16,50%

 

2 AUGUST 99

16,50%

4 OCTOBER 99

15,50%

 

4 OCTOBER 99

15,50%

25 JANUARY 2000

14,50%

 

25 JANUARY 2000

14,50%

18 JUNE 01

13,75%

 

18 JUNE 01

13,75%

1 AUGUST 01

13,50%

 

16 JULY 01

13,50%

1 OCTOBER 01

13,00%

 

25 SEPTEMBER 01

13,00%

28 JANUARY 02

14,00%

 

16 JANUARY 02

14,00%

18 MARCH 02

15,00%

 

18 MARCH 02

15,00%

1 JULY 02

16,00%

 

1 JULY 02

16,00%

14 SEPTEMBER 02

17,00%

 

14 SEPTEMBER 02

17,00%

12 JUNE 03

15,50%

 

12 JUNE 03

15,50%

18 AUGUST 03

14,50%

 

14 AUGUST 03

14,50%

11 SEPTEMBER 03

13,50%

 

11 SEPTEMBER 03

13,50%

20 OCTOBER 2003

12,00%

 

20 OCTOBER 2003

12,00%

15DECEMBER 2003

11,50%

 

15 DECEMBER 2003

11,50%

16 AUGUST 2004

11,00%

 

13 AUGUST 2004

11,00%

15 APRIL 2005

10,50%

 

14 APRIL 2005

10,50%

8 JUNE 2006

11,00%

 

8 JUNE 2006

11,00%

4 AUGUST 2006

11,50%

 

3 AUGUST 2006

11,50%

14 OCTOBER 2006

12,00%

 

14 OCTOBER 2006

12,00%

8 DECEMBER 2006

12,50%

 

8 DECEMBER 2006

12,50%

7 JUNE 2007

13,00%

 

7 JUNE 2007

13,00%

16 AUGUST 2007

13,50%

 

16 AUGUST 2007

13,50%

11 OCTOBER 2007

14,00%

 

11 OCTOBER 2007

14,00%

6 DECEMBER 2007

14,50%

 

6 DECEMBER 2007

14,50%

10 APRIL 2008

15,00%

 

10 APRIL 2008

15,00%

Article by: www.anneporter.co.za