Fixing your home loan interest rate: the pros and cons

The historic lows that the interest rate reached during the height of the COVID 19 pandemic in 2020 have started to reverse. This has led many homeowners and property buyers to consider the possibility of fixing their home loan interest rate. Jawitz Properties considers the pros and cons of this - and suggests other ways that you can work towards paying as little interest as possible on your home loan.

The advantages of fixing your home loan rate

The obvious advantage to fixing your interest rate is that if the prime interest rate goes up, your monthly repayment will not change. Over and above this, you will know exactly how much you will need to pay for your home loan over the period for which the home loan has been fixed. This makes it easier to plan your finances and budget.

Reasons to think twice about fixing your home loan rate

As mentioned, you may be tempted to fix your interest rate so that you don't pay more if the prime interest rate goes up. However, it's worth remembering that a home loan is a long-term investment and it's difficult to predict what the future holds. If the prime interest rate drops, you will miss out on savings if your home loan is fixed. 

Since fixing your home loan rate means a higher risk for the bank, the interest rate you are charged will be higher on a fixed home loan than on a variable one - typically by at least 2%. Over the 20-year term of a home loan, it is actually likely that you will pay less overall if you opt for the variable interest rate option from start to finish.

Another important factor to think about when it comes to fixing your home loan rate is timing. The best time to fix a home loan interest rate would have been when the rate was at its lowest - not now that it has started to climb. 

Quick facts about fixing your home loan interest rate

• Typically, you won't be able to fix your interest rate for the entire duration of your home loan term. It will be fixed for a maximum of five years.

• All home loans start out with a variable interest rate. You can only apply for a fixed interest rate after the bond has been registered. 

• You can use these handy home loan calculators to see how changes in the variable interest rate will affect your home loan repayments.

Other ways to minimise the interest that you pay

Fixing your home loan rate is not the only way to save money on your home loan in the long term. The first step to getting the best possible interest rate (and having the lowest possible debt) is to put down as much as possible as a deposit when you buy your home. However, it's not too late to chip away at that debt if you've already signed on the dotted line. Over time, you'll be amazed at how even just a few hundred rand extra every month can lower the amount of interest that you end up paying. Lastly, using the services of a bond originator when you apply for home loan finance is the way to ensure that you get the best possible deal.

Jawitz Properties is here to help and advise you through every stage of the journey of homeownership, from finding the right property to financing it with a home loan and an interest rate that meets your needs. Contact us for more information and advice.