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The bigger portion of your
bond instalments will go to
paying back the interest for the loan. Therefore it is important to
choose the
right type of rate. You can normally choose between a fixed rate or a
variable.
Fixed
mortgages rates:
With a fixed mortgage rate
your instalments will
remain the same, even if the prime rate increases. Often the banks can
fix an
interest rate just under the current prime rate. You can often choose
over what
term you want the rate fixed.
Pros:
It will be easy for
you to budget your mortgage
instalment over the full bond term. Your instalment will not change
during the
period that you have fixed your rate.
If the interest rate
goes up, your bond instalment
will not be affected. This means you don’t have to worry about any
interest
rate hikes.
This means a fixed rate
will protect you when there
are upward fluctuations in mortgage interest rates.
Cons:
When originally fixing your
interest rate, it’s very
likely your fixed rate will be higher than the variable rate the bank
would
have offered you. So initially your repayments will be higher when you
chose a
fixed rate, rather than a variable.
If the prime rate goes down,
you will not benefit from
the downward fluctuation. Your interest rate will remain the same. You
might
find yourself paying an interest rate that is effectively above the
prime rate.
Variable
mortgage rates:
A variable mortgage rate will
fluctuate in conjunction
with the banks prime lending rate.
Pros:
Normally you can obtain a
variable rate that is below
the current prime rate. This means you will benefit by means of the
lowest
possible instalment at that point in time.
It
is advisable to go for a variable mortgage rate when there is a
downward fluctuation
in the interest rates. When the interest rate goes down, your effective
rate
will reduce and your bond instalment together with it.
Cons:
If
the interest rate increases, so will your effective rate. You might
find that
you are paying substantially more than when you initiated the loan.
This can
make it more difficult to budget for your repayments.
To apply for a home loan OR refinancing,
click here for a No-Obligation Quote , you will have
to fill out a short application form. You will then receive a FREE
quote from well established, nationally recognized lenders. You do not
need to decide now whether the loan is for you.
There is no
obligation on your part. If you decide that it is not for you, you
simply do not have to accept the offer. You have nothing to lose and
everything to gain.
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