27 Mar 2014
Asked if it might pay, in view of the fluctuations experienced in previous years, to go for a fixed rate over a longer period, Van Alphen says the banks seldom grant fixed rates for more than five years, and in the current conditions they might charge as much as R1 600 extra on an R800 000, five-year fixed rate loan.
This is according to Mike van Alphen, National Manager for the Rawson Property Group’s bond origination division, Rawson Finance, who says in today’s economy it is quite understandable that people are looking for ways to protect themselves from price rises. However, he says this can be an expensive procedure and therefore is not necessarily advisable.
Van Alphen says South African banks seldom quote blanket figures for fixed interest rates – they generally wait until the loan has been approved and then treat each case individually. He says most fixed rates are set one to three percent above the current rate and this results in the client paying more than is essential at the time. For example, he says that on an R800 000 bond taken out over a 20 year period at the current rate of nine percent, the borrower would pay R7 200 per month. If he then chooses to fix the rate for three years, he would probably have to pay two percent above the current rate, which equates to R8 256 per month. Asked if it might pay, in view of the fluctuations experienced in previous years, to go for a fixed rate over a longer period, Van Alphen says the banks seldom grant fixed rates for more than five years, and in the current conditions they might charge as much as R1 600 extra on an R800 000, five-year fixed rate loan. That is a fairly steep price to pay for knowing exactly how much to budget for, he says. Van Alphen advises homeowners to strive, even if it involves considerable hardship, to set the rate of payment above the rate stipulated by, say, one or two percent. “Those who go this route will have the satisfaction of seeing their bond repayment period significantly cut and knowing that, should they experience hard times, they have a cash buffer which allows them to skip one or two months of payments without suffering any penalties.”