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Wednesday Aug 17, 2011

Home loan interest rates 'already higher'

Effective home loan interest rates are already rising says Rudi Botha, CEO of mortgage originator Betterbond.

"In recent months we have seen a significant decrease in the rate concessions that banks are willing to give clients, from as much as 1,5% off prime to virtually nothing."

"In other words, home loan interest rates are already effectively higher for many borrowers, even though the Reserve Bank has not yet officially raised interest rates."

What is more, he says, Betterbond expects the banks to further increase the cost of home loans in the near future due to pressure on their margins and the new capital ratio requirements imposed by Basel III.

"Consequently, we are urging prospective buyers not to delay, as they can probably still secure a home loan at a good rate relative to what rates are likely to be next year - which will translate into massive savings over the lifetime of the loan."

For example, says Botha, if you secure a R750 000 home loan now at 9%, the monthly repayment will be R6750 and the total interest projected over 20 years will be R870 000. But if you wait until rates are just 0,5% higher, your monthly repayment will rise to R6990 and the total interest due to R928 000.

"On the other hand," he says, "now would be a great time for those who already have home loans or those who are buying homes to approach their banks and fix the interest rate on those loans for three to five years, especially if you are a first-time buyer on a tight budget or someone living on a fixed income.

"The premiums currently being charged for fixed rate loans vary from bank to bank and from week to week, but are currently as low as 1,25% above prime if you fix your rate for 60 months and could be even lower if you fix it for 24 or 36 months. This means they are soon likely to be equalled or exceeded by prime, as interest rates are expected to start rising from the end of this year or early next year in response to rising inflation.

"The big advantage of fixed-rate loans is that they enable borrowers to budget with certainty even when rates are rising, and this is especially important for first-time buyers, lower-income families and those living on fixed incomes, who might otherwise finds themselves overwhelmed by rising home loan repayments as interest rates rise, and in very real danger of losing their homes."

Betterbond Press Release

    
 

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