Fixed interest home loans or step-down home loans are options for you if you are afraid of interest rate surprises in the future.
Home loans with fixed rates lock you in to a certain rate for a particular length of time.
Step-down rates are a variation on this, where your interest rate is reduced by a certain amount in steps over a period.
Peter Southworth, general manager, retail banking products at Nedbank and Permanent Bank, says in choosing one option over another you must consider where interest rates are going and how stable you want your home loan repayments to be.
If you believe interest rates are on a downward trend you may be better off with a variable rate because these rates are likely to drop below the fixed rates currently being offered.
But should you take the view that rates will start rising again in the near future your best bet is to opt for a fixed rate now.
If you choose a fixed rate you will pay this rate for a certain period which can be anything from one to 24 months.
You can generally choose which period you want from several offered by your bank.
The main advantage of a fixed rate is that you know exactly how much you must pay each month and you can plan your budget accordingly.
This means you won't have to weather any storms like last year when rates were on a downward trend, but unexpectedly shot up by six percentage points to 24 percent in September last year.
But you must realise that your decision to lock into a fixed rate could cost you more if interest rates decrease while you are locked in.
The choice depends very much on your personal circumstances and your attitude towards risk. Most banks offer both options.
Southworth says it is impossible to give specific advice because there are factors, such as the Asian crisis last year, that nobody can anticipate.
Richard Gahagan from Absa says fixed rates give you budgeting ability that you would otherwise not have had.
The term over which fixed rates are offered varies according to market conditions.
You must remember that when you opt for a fixed rate you sign a legal contract which ties you in for a contracted period.
If you withdraw from the contract before the time is up, you may have to pay a penalty fee. Some banks charge a percentage of the outstanding loan and others recalculate the interest owed as if you had never chosen the fixed rate.
These penalties can be high and you should not enter lightly into a fixed rate contract.
Unless you pay the penalty in cash, the charge will be added to your loan and you will end up paying interest on this over the full term of the loan.
Before choosing a step down rate, you must look at the start rate and the final rate and compare them with the rates which you think will apply in the market at those times.
FIXED-INTEREST RATES OFFERED BY THE BIG BANKS
Loans of R100 000 to R399 999:
Where loan is less than 80% of the value of the property:
12 months: 16,45%
24 months: 16,75%
Where loan is 80% or more of the value of the property:
12 months: 16,70%
24 months: 17%
Loans of R400 000 and more:
Where loan is less than 80% of the value of the property:
12 months: 16,20%
24 months: 16,50%
Where loan is 80% or more of the value of the property:
12 months: 16,45%
24 months: 16,75%
New loans at Absa qualify for a 0,5% discount on the above rates
FIRST NATIONAL BANK
Loans of R100 000 and more
where loan is less than 80% of the value of the property:
1 to 6 months: 16,75%
7 to 12 months: 15,75%
Loans of R100 000 and more
Where loan is 80% to 95% of the value of the property:
1 to 6 months: 17%
7 to 12 months: 16%
NBS
Loans of R150 000 to R299 000 for a period of 12 or 24 months:
Where loan is less than 80% of the value of the property:
16,8% or 16,3% for new loans
Where loan is 80-90% of the value of the property:
17% or 16,5% for new loans
Where loan is more than 90% of the value of the property:
17,95% or 17,9% for new loans
Loans of R300 000 or more for a period of 12 or 24 months:
Where loan is less than 90% of the value of the property:
16,8% or 16,3% for new loans
STANDARD BANK
Loans under R150 000:
Where loan is less than 80% of the value of the property:
12 months: 16,20%
18 months: 16,50%
Where loan is 80% or more of the value of the property:
12 months: 16,20%
18 months: 16,75%
Loans of R150 000 or more:
Where loan is less than 80% of the value of the property:
12 months: 15,95% to 15,7%
18 months: 16,25 to 16%
Where loan is 80% or more of the value of the property:
12 months: 16,20 to 15,95%
18 months: 16,5 to 16,25%
NEDCOR (NEDBANK, PEOPLE'S BANK AND PERMANENT BANK) *
Loans of more than R100 000:
12 months: 16,75%
18 months: 16,50%
* Rates under revision
STEP-DOWN RATES OFFERED BY THE BIG BANKS
FNB
Loans of R100 000 and more where loan is less than 80% of the value of the property:
12 month period
1-6 months: 16,75%
7-12 months: 15,75%
Initial Rate: 16,75
Final Rate: 15,75
Loans of R100 000 or more where loan is 80% to 95% of the value of the property:
12 month period
1-6 months: 17%
7-12 months: 16%
Initial Rate: 17%
Final Rate: 16%
NBS
Loans of R100 000 and over: Rates step down 0,25% every
6 months
5- year option
Initial Rate: 18%
Final Rate: 15,50%
3- year option
Initial Rate: 17,75%
Final Rate: 15,25%
NEDCOR*
Loans of R100 000 and over: Rates step down 1% every
6 months
1- year
Initial Rate: 17,9%Z
Final Rate: 16,90%
* Rates under revision
STANDARD
Rates step down 0,5% every
6 months
Existing loans and loans of less than R400 000:
18 months
Initial Rate: 17%
Final Rate: 16%
24 months
Initial Rate: 17%
Final Rate: 15,5%
New loans and loans of more than R400 000
18 months
Initial Rate: 16,5%
Final Rate: 15,5%
24 months
Initial Rate: 16,5%
Final Rate: 15%