Mortgage interest rates
The interest rate charged on your home loan is crucial. It will determine how much you can afford to borrow and therefore how much you can afford to spend on a house. Your Bond Busters consultant will be the best informed to advise you on your likely interest rate. The rate will depend on a number of factors such as the loan to value ratio (the size of your mortgage compared to the price of the house you are buying or own), your repayment to income (the cost of your monthly mortgage repayment to your gross monthly income), the size of your bond and your credit profile.
How is the interest charged on mortgages?
In South Africa, interest is generally charged daily on your mortgage. Some lenders will allow you to pay your mortgage repayments twice a month. This will dramatically reduce the amount of interest you will pay over the lifetime of your mortgage. Speak to your BondBusters mortgage consultant for more information on this.
Which type of mortgage is best?
There is no simple answer to this question. Most people will obviously want the cheapest deal they can get on their mortgage. But you may to compromise a little on cost in order to get something that is a little more flexible. Fixed-rate deals are very popular in the rest of the world but only 5% of South African mortgages are on a fixed rate. This is due to the uncompetitive rates offered by banks on fixed mortgages to offeset the risk of volatile interest rates.
If you're on a tight budget and you like certainty then a fixed rate mortgage may be a good option for you. If you have a little more flexibility on your monthly outgoings, a variable interest rate might suit you better. One lender in South Africa offers a combination of fixed and variable meaning you can fix say 50% and have the other 50% of your mortgage on a variable rate. This is a complex product and is best to discuss this with a consultant.