In light of the Reserve Bank’s decision to increase interest rates, once again the question is foremost in many buyers’ minds whether or not to fix their bond payments.

There are many arguments for and against ‘fixing’, the usual one is that it is easier to budget for a fixed expense and one will not be caught out by sudden interest rate hikes. The memory of 1998 when interest rates went up from 18 to 24 percent within three months may not be far from our minds.

However, a few things can be kept in mind when considering your options.

Fixed rate loans are usually 1 or 2 percentage points above the variable rates, at a term of between 12, 18 and 24 months.

At the current 13%, a bond of R500 000 is around R5860. A fixed rate of 1,5% higher means a repayment amount of R6400, difference of R540 per month immediately.

As an alternative you may consider the following:

Why not pay the additional R540 into the capital portion of your homeloan, thereby reducing the outstanding amount in the face of possible rate hikes?

How about negotiating a lower interest rate when you purchase the property, for example, if you can negotiate the rate down by just 1% to 12% the repayment will be R5500, giving you leeway to cope with a rise in rates.

Another alternative should you be concerned about finances is to simply take a smaller loan or pay a deposit. If you can comfortably afford R5860 for R500 000, a bond of R450 000 will set you back around R5270 at 13%. Should the rates rise by 1,5% your bond repayments will then only be R5760, still well within your comfort zone.

Of course, in spite of all current indications that rates are unlikely to rise steeply, some may feel the extra payable for a fixed rate is a small price to pay for their peace of mind, considering that a 2% rise in interest rate equates with approx 20% increase in the monthly bond payments.

Liz Charles
Principal: Liz Charles Estates, Vanderbijlpark