Rising interest rates - is now the time to fix your bond?

In the current financial times where homeowners and potential buyers are becoming more guarded of their purse strings, the option to negotiate a fixed interest rate as opposed to a prime linked scheme is becoming an increasingly popular option.

Even though fixed bond schemes can help to alleviate the financial burden of harder times, real estate experts are warning homeowners to think carefully before taking out what may be a more costly scheme in the long run.

Analysing increasing interest rates

Real estate experts continue to warn that there is no end in sight with regards to rising interest rates fueled by a number of contributing factors from the war in Ukraine to increased oil costs and electricity prices. All of these factors put pressure on inflation which translates to an increased cost of living.

That being said, it's important not to overthink increases as it is unlikely to reach the exceedingly high levels that many fear. In essence, increasing interest rates is an integral method for the South African Reserve Bank to contain and manage inflation following the economic impediment of the pandemic.

The primary focus right now is reigniting and stimulating economic growth by encouraging more market transactions. Increasing interest rates beyond a sustainable level would throw a wrench in the works and upend SARB's objective. As such, a slow, moderate rise with steady levels remains a far more likely outcome.

Navigating fixed interest rates

Reverting back to fixed interest rates to mitigate rising inflation is unlikely to have the cost-saving effect that most homeowners are hoping to achieve. One thing that needs to be understood is that fixed interest rates will likely always be higher than a prime linked rate on an average of at least 2%. 

Since SARB is unlikely to increase these interest rates drastically over the next two years, taking out a fixed bond is more than likely going to increase a homeowner's overall expenses and force them into paying off loans for longer than necessary.

Planning ahead to mitigate predicted rises

Rather than attempting to dodge increased interest rates altogether, real estate experts suggest that homeowners should rather focus on planning ahead to accommodate for the rise in predicted costs.

Data collected by SARB predicts that prime rates will peak at 8.35% by the end of the year, a further percentage point to 9.25% at the end of 2023, and 10.25% by the end of 2024. With these waypoints in mind, one can then run these numbers through a bond calculator and figure out just how much interest rates will affect repayments.

If affordability is likely to become an issue, it is suggested that you approach your lender as soon as possible to discuss a full range of alternative options that can be made available outside of attempting to fix your bond. Given the warning in advance, lenders are far more likely to reach a mutually beneficial compromise that enables you to stay abreast of bond repayments while working your way towards a more stable financial outcome.

Contact Ikonic Real Estate today

For Real Estate professionals you can trust and rely on for industry-related expertise, contact us below for more information.

If you are looking to live in Silver Lakes Golf and Lifestyle Estate, Silver Stream Estate, Lombardy Estate & Health Spa, The Ridge Estate, Six Fountains Estate, or Willow Acres Estate and surrounding areas then Ikonic Real Estate is your preferred property practitioner to assist you in all aspects of the selling and buying process.

Office Number: 083 452 5599

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Email: martin@ikonic.co.za

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