Boland Bank has come up with a new variation on the capped mortgage bond rates. The bank calls it a ceiling rate option.
Through capped rates - the concept introduced by Standard Bank last month - a mortgage bond borrower effectively pays an insurance premium to keep interest rates at a fixed level. To keep rates at 17,5 percent the borrower pays 70 cents in every R1 000.
While the capped mortgage bond interest rate would not go up in line with normal variable rates , it could come down, but the premium would remain as a constant expense to the client.
A spokesman for Boland Bank said the capped product with a 17,5 percent interest rate was actually an effective rate of 18,34 percent once the premium of 70c/R1 000 was taken into account.
Boland Bank has decided, as from September 1, to offer two new ceiling variations. The one is set at 18,25 percent over 24 months and the other at 18,75 percent over 36 months. Both set a ceiling but would also allow the client's rate to reduce if the standard variable rate dropped below 17,5 percent.
No premium is attached to the product, allowing for easy identification of costs.
A fixed rate option is also available from the bank at 17,5 percent for
24 months.
With the product Boland Bank says their clients are fully in the picture.
Boland says the ceiling variations offer interesting gains to their clients. For example should the standard variable bond rates stay where they are at 18,25 percent, or go up, then the ceiling rate stays in place at its present level.
If the standard rate drops below 17,5 percent the ceiling rate comes down as well. The price at which the ceiling rate options are offered could vary in future depending on rates at the time of entry into the option contract.
Boland variable rates vary between 18,25 and 19,25 percent.