Buying a home is probably the largest purchase you will ever make, so it's important to make sure that you can afford the monthly repayments if you apply for a bond, says Carl Coetzee, CEO of BetterBond. "Look carefully at your financial situation to see what you can pay and take into account your monthly financial commitments." BetterBond's bond affordability calculator will show what you can afford to spend on a new home, taking into account your income and monthly expenses.
Coetzee explains that consecutive rate cuts in 2021 reduced the prime lending rate to its lowest in 55 years, improving affordability for a home loan by up to 30%. "Although the rates cycle has started to turn, the prime lending rate is likely to remain below double digits for a while yet."
This has reignited the debate about the merits of fixing the interest rate on your home loan to make the most of the favourable lending conditions, says Coetzee. "There isn't a simple answer when it comes to evaluating the benefits of a fixed interest rate or a variable interest rate that fluctuates in line with the repo rate. Each buyer's financial situation and circumstances are unique."
He adds that when applying for a home loan, it is by default on the basis of a variable interest rate. "Only once your bond has registered can you apply for a fixed interest rate and there is a strict time limit attached before the offer lapses."
The following factors will help you decide on the most suitable interest rate options for your specific needs, says Coetzee.
"While market conditions are useful, it's even more important to remember that past trends are not always good indicators of future performance. The determining factor when it comes to deciding on whether to fix the interest rate on your bond should be affordability," concludes Coetzee.
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