As interest rates slowly inch downwards, homeowners are faced with a dilemma: should you choose one of the fixed interest rate options offered by the banks, or hang on in the hope that interest rates will fall further?
Interest rates do seem to be on a downward path, but this was also the case last year just before rates shot up from 18 percent in March to 24 percent in September.
Matthys Strauss, economist at Absa Bank, says he foresees a prime interest rate of 18 percent by the end of this year and possibly a cut of another one percentage point or more next year to 16,5 percent.
Interest rates are expected to stabilise at that level before picking up again. But, warns Strauss, his prediction of a prime rate of about 16,5 percent depends on continued international economic stability.
One uncertainty is the policy line taken by the incoming Reserve Bank governor, Tito Mboweni. If he sticks to the tight monetary policy followed by the present governor, Chris Stals, rates should drop to about 16,5 percent next year. But, should Mboweni find an inflation rate of about seven percent acceptable and decide to lower interest rates to stimulate the economy, we can expect an even lower prime rate of about 15 percent in 2000, Strauss says.
Whether you should lock into a fixed interest rate depends on the rate you can get, he says.
Dennis Dykes, chief economist at Nedcor, agrees that interest rates could decrease significantly with the prime rate dropping to 17 percent and home loan rates to about 16,5 percent in 2000.
He says you should base your decision on whether to go for a fixed interest rate on how you weathered the interest rate storm last year. If you found then that you could not maintain your monthly repayments when home loan rates peaked at 24 percent, then you might be wise to choose a fixed rate now to escape future rises.
On the other hand, if you are prepared to face the roughly 20 percent risk that rates could shoot up again and feel that you could cope financially, then stick to a variable rate.
Fixed interest rate options vary from bank to bank. See table below for further details.
Standard Bank this week introduced another fixed rate option which guarantees you a rate of 16,25 percent in two years time.
Apart from the fixed rates in the table, NBS also offers a Step Down bond which guarantees a 0,5 percentage point rate reduction every six months for five years. You kick off at a rate of 20,75 percent.
At Absa, the rate that is offered to you depends on the financial package that you have with the bank and the size of your loan. If you are a new borrower, the bank will assess your income and size of loan to decide what rate to offer.
First National Bank is not offering fixed rates at present.
COMPARISON OF FIXED RATES
ABSASTANDARDNEDCORNBS
New Loans
R100 000 toR150 00019% to 20%18,75%18,75% (to R200 000)Under 80%: 18,25%
R150 000 toR400 00019,5%18,5%18,5% (from R200 00080% to 90%: 19,75%
OverR400 00018,5% to 19,25%18,25%18,5%Over 90%: 20,50%
Existing LoansSame as aboveSame as aboveNot availableRates negotiable on merit
Time period Options12/18/24 mths12/18/24 mths12/18/24 mths18/24 mths
Loans under R100 000 also qualify for the rates in the first category at Standard Bank.
Note: At NBS, it is not the size of the loan that counts, but the loan to value ratio. This means the more you have paid off on your property the better rate you qualify for.