BOND INTEREST CONSIDERATIONS



When applying for your bond make sure you fight for the best interest rate options available. Banks will not offer you discount up front and you will be surprised at how quickly you could score another half a percentage if you fought for it.
 
A difference of even half a percentage point can make a huge difference in how much you pay over the life of a loan. For example, the difference in the monthly payment on a R700,000 mortgage at 8 percent vs. 7.5 percent is about R245 per month. Over 30 years, that's R88,200.
 
Look at the repayment calculator tables to do the sums for yourself.

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VARIABLE INTEREST RATE OPTION
 
A variable interest rate is a fluctuating rate based on the prime lending rate, as set by the bank from time to time. You are able to negotiate a potential concession with your bank. If interest rates change, so does your monthly repayment.
 
What are the features and benefits of the Variable Interest Rate option?
  • Your interest rate is individually determined, based on your personal and property details.
  • You can switch from this rate option to another rate option at any time.
  • This rate option cannot be fixed for a predetermined period.
  • Fluctuations in the prime lending rate affect the interest charged and the monthly repayments on loans using this interest rate option.
Why take the Variable Home Loan Interest Rate option?
  • You believe that interest rates will be reducing in the short to medium term.
  • You have sufficient disposable income to handle variations in your repayment. Example: The monthly repayment on a home loan amount of R400 000 if paid off over a 20-year period: At 13% = R4 686.00 | At 14% = R4 974.08 | At 15% = R5 267.16
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FIXED INTEREST RATE OPTION
 
A fixed interest rate is an agreed upon interest rate that is fixed (does not change) over a pre-determined period of time (term). Please note that the fixed rate option is contracted for a specific term and, after this term, will revert back to the prime lending rate, a variable interest rate, unless you opt to renew the fixed rate option at the time of renegotiating.
 
What are the features and benefits of the Fixed Interest Home Loan Rate option?
  • Certainty regarding what your repayments will be for the specified period.
  • Protection against upward movements in the prime lending rate.
  • The fixed rate option may not be terminated prior to the expiry of the agreement.
  • The variable interest rate option or another fixed rate option can be applied once the fixed rate option expires.
 
Why take the Fixed Home Loan Interest Rate option?
  • You prefer regular payments with no surprises.
  • You have a limited or fixed income.
  • You plan to stay in the home for a long time.
  • You want protection from rising interest rates.
  • You are refinancing at a time when interest rates are comparatively low.

Back the Finance Advice Centre for all your finance answers
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