Don’t lock yourself into a fixed interest rate

By Staff Writer

By Mokgatla Madisha

Fixing interest on your home loan because of spiralling inflation and the threat of yet another rate increase this week could be a big mistake.

It may be a costly decision. You could end up paying more in interest than if you were to ride out the cycle.

The decision homeowners have to make rests on how much higher interest rates will go and how long they are likely to stay at elevated levels.

Inflation is rampant and Reserve Bank Governor Tito Mboweni has been clear about his intentions of addressing it aggressively, but homeowners should bear in mind that the higher rates go now, the quicker they are likely to fall.

Swift action by the Reserve Bank now will have the effect of reducing inflation a lot faster.

Fixing your rate for two years could mean that you would be stuck with having to pay off your mortgage at 16% in 2010 whereas inflation could have fallen back to 6% and rates may have been reduced down to 12%.

Banks may offer clients the option to fix mortgage rates at around 0.5% to 1% above the current prime rate for a period of up to two years.

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