How to make the most of the latest interest rate cut
If you seek some much-needed relief when buying your home, now is the time to act as South Africa’s interest rate is at a historic 50-year low, giving homeowners some wiggle room, even in these difficult times given the economic constraints caused by Covid-19.
Be that as it may, while the extra money may prove to be useful during these intense times, mortgage holders need to consider keeping up their home loan reimbursements at pre-rate cut levels. Contingent on what extent you keep up the extra installments, doing this could altogether lessen the total interest you pay and abbreviate the loan reimbursement term.
This is a perfect opportunity for first time buyers to get into the market as the prices have dropped significantly and house prices will not grow very soon which makes it the best time to buy. But you should remember to work out all the costs associated with buying a home.
For example; Your registration and attorney fees, water and electricity fees as well as your insurance and all other ongoing fees.
It is best to always seek a financial advisor to help you with your financial plan. Their advice, knowledge, experience, and insights could be very valuable to you. Especially now with the uncertainty of our current economic climate.
A Bond originator would be able to help and guide you to understand the difference between a fixed or variable interest rate.
Homeowners and new home buyers should also explore the pros and cons of opting for a fixed interest rate versus a variable interest rate.
A variable-rate follows the rate adjustments made by your bank following the Reserve Bank announcements.
A variable-rate may be expensive if the Reserve Bank maintains excessive interest rates over a prolonged period.
A fixed-rate remains unchanged even if interest rates change. The disadvantage of a fixed rate is that you may miss out on savings when rates are cut.
You should take a long-term view of the benefits of the rate cut to maximize its positive impact on your finances, especially if you can afford to pay more than what is required.
It’s vital to understand that each person’s economic scenario and their individual set of situations are unique. So, there isn’t an easy answer to the query of fixing, or now not fixing, the interest rate on your home loan. The best would be to speak to your financial advisor and seek their expertise and receive the best advice when making your decision.