Don't rush into fixing your bond interest just yet, says Neethling

As interest rates continue to charter a downward course, homebuyers – and existing homeowners – are once again asking themselves whether the time has come to try and fix their rates for a specified period and, if so, for how long.

“Whether or not to fix rates,” says Ivan Neethling, Chairman of the Western Cape Institute of Estate Agents, “is a question which we get asked almost daily. Hard-pressed homeowners who have struggled to maintain their bond repayments for 18 months are understandably tempted by the idea of securing a steady low rate for a specified period.”

Although few can predict the future accurately right now, said Neethling, bondholders should look ahead and try to anticipate how interest rates will perform in the next one to two quarters.

“If you settle for a fixed rate right now,” he said, “you could well find that by mid-2010 you are paying in excess of 10 or 11% but that the market has softened significantly below this level.”

The majority of economists, said Neethling, are saying that further declines in the interest rate are inevitable because it is essential to reignite the economy – and the Monetary Policy Committee seems to accept this. If a buyer gets locked into a fixed rate now, it could turn out to have an adverse effect on his savings.

“My advice is to wait until the bottoming out of the downward curve is more clearly evident,” he said.

Asked how the banks respond to requests for fixed rates, Neethling said that they will grant them to clients but they have of late been under severe pressure from clients who had fixed their bond rates earlier and are now trying to get out of these arrangements.

“As we all know, interest rates have come down significantly since December 2008, with the result that some people are now locked in at much higher rates – which they resent. One can understand the banks’ annoyance at always being expected to accommodate clients.”

Article by: