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The debate about whether or not to fix the interest rate on your home loan has been reignited by two 100-basis-point rate cuts in response to the Coronavirus outbreak. This has brought interest rates to the lowest point in nearly half a century.
What do the experts say? BetterBond CEO, Carl Coetzee, believes, "It's important to remember that each person's financial situation and their individual set of circumstances are unique. So, there isn't a simple answer to the question of fixing, or not fixing, the interest rate on your home loan. But there are some important factors to take into account whenever you consider this question."
Know your interest rates
Coetzee explains, "When you apply 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 then there is a strict time limit attached before the offer lapses."
Three factors to think about
Some of the most important factors in deciding whether to fix your interest rate or not, are:
Is history anything to go by?
Most historical sources seem to agree that you are probably likely to pay a little less with a variable interest rate than on a fixed interest rate, over time. Coetzee cautions, however, that, "This is useful to consider, but it's even more important to remember that past trends aren't necessarily good indicators of future performance. The determining factor must always be affordability, so look carefully at your financial situation, to see what you can afford and take into account your financial commitments. Buying a home is probably the largest purchase you'll ever make, so think carefully!"
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