Is it the right time to fix your home loan?

Is it the right time to fix your home loan?

Here is what the big-four banks say.

The demand to fix interest rates on a home loan has been subdued according to the majority of the big-four banks, but Standard Bank says it has fixed over R1bn in loans in the past five months and believes it is a great idea to fix if a client wants to ride out volatility.

“We have obviously been doing a campaign where we have actually said to the people that interest rates are at the lowest level in 36 years. Yes there is a risk that interest rates will go down based on what is happening in the world economy, but there is also a risk that interest rates will go up,” Standard Bank’s director of home loans, Funeka Ntombela said.

“For the customers, to the extent that they want to protect themselves, we think that it’s a great idea ... Previously if you wanted to fix the rate it would be prime plus but now it is hovering around prime to fix for about two years. If you are a customer and you are already on prime or prime minus 50 basis points is not such a giant leap. You might just say I am going to give up this to get a 24 month protection.”

A Reuters poll posted last week showed analysts see the Reserve Bank leaving the repo rate unchanged at 5.5% on Thursday. Reuters said almost half of the 26 polled forecast rates to start rising in the second half of next year.

Ntombela said although Standard Bank had fixed loans over R1bn in the past five months, the take up rate for the customers phoned was not 100%. But there were clients who thought it was not as expensive to fix now. She said for those who had a rate of prime minus two in their rate it was difficult for them to give that away by fixing.

Earlier in the year Moneyweb reported that Standard Bank was the only big-four bank that was not fixing. But after the report the bank backtracked on its decision and started awarding its customers the opportunity to fix.

Absa, FNB and Nedbank said the demand to fix was currently subdued. managing executive for Absa home loans, Sifiso Shongwe said the total value of loans fixed since April was about R60m. He added the majority of fixed rates taken up over the last six months were for a period of 24 months and in the range of 9% to 12%.

“The decision to fix or not will be influenced by, the term available for fixing, the initial difference between the fixed and variable rates offered to the customer – and the immediate impact thereof on the free cash flow of the customer,” Shongwe said.

He added that the customers interest rate expectations over the term available for fixing were also a factor.

Head of product, marketing and pricing at First National Bank (FNB), Praven Subbramoney, also shared the view that if customers fixed they would benefit from maintaining certainty of cash flow.

Subbramoney said at FNB clients were mostly taking up the 36 and 60 month fixing options. On top of the current interest rate, Subbramoney added the average premium to fix at FNB was 0.15% for 12 and 18 months, 0.20% for 24 months, 0.25% for 36 months, 0.55% for 48 months and 0.85% for 60 months.

Nedbank’s general manager of sales and customer service, Pat Lamont said although fixed rates protected people from unexpected additional monthly expenses a potential customer needs to consult widely before fixing.

“Clients need to take cognisance of the fact that fixed rate contracts carry financial penalties should one opt to cancel the contract. Dependent on the term, and the value of the bond amount, this may constitute a substantial amount. Hence, we would suggest that clients consider their options carefully and consult widely prior to entering into long-term fixed rate contracts,” Lamont said.

At Nedbank people can fix from 12-60 months and on average clients have been fixing for a period of 12-36 months.


Denny Crane

Denny Crane
It's not me ... yet. Denny Crane from the TV series Boston Legal. Click on picture if you're not sure who he is!