How to negotiate a better interest rate on your bond
A real estate agent shares advice on how to best negotiate for a better interest rate when it comes to bond repayments.
The majority of South Africans rely on financial institutions to help them purchase their property.
Sadly, buying property through a loan means you will have to deal with paying a lot of interest.
Below, Nunky Koma, a real estate agent at Keller Williams Realty, shares advice on how to best deal with interest rates.
Are there ways to negotiate the interest rates when taking out a home loan?
"Yes! It is always better to work through a bond originator; like we use Multinet, because they submit to all the banks. A bank is not just going to give you the best rate that they can offer you, but once they know that there’s competition within your application, they will offer you a better price. And even let the bond originator go back and ask for an even better price."
READ: High interest rates: Tips to help you keep your property
Is a fixed interest rate a good or bad idea for property owners?
"Deciding whether a fixed interest rate is a good or bad idea for property owners depends on individual circumstances and the prevailing market conditions. Again, there are some factors to consider."
Here are some advantages of Fixed Interest Rates, according to Nunky:
• Protection Against Interest Rate Increases: A fixed interest rate shields property owners from potential future interest rate hikes. If market interest rates rise, your bond payment remains unaffected, providing stability and protection against increased borrowing costs.
• Peace of Mind: Some homeowners prefer the peace of mind that comes with a fixed interest rate. Knowing that their mortgage payment won't change for a set period allows them to plan their finances with greater certainty.
• Predictability and Budgeting: One of the main benefits of a fixed interest rate is the predictability it offers. With a fixed rate, your bond payment remains the same throughout the specified period, typically ranging from a few years to a couple of decades. This allows for easier budgeting and financial planning, as you know exactly how much you'll need to allocate for your bond each month.
She also lists the disadvantages of Fixed Interest Rates:
• Missed Opportunities for Rate Reduction: If market interest rates decrease after you've locked in a fixed rate, you won't benefit from the lower rates unless you refinance your bond.
• Limited Flexibility: Fixed-rate bonds often have limitations in terms of prepayment options and early repayment penalties. If you plan to make extra payments or pay off your bond earlier, these restrictions may limit your flexibility.
• Potentially Higher Initial Rate: Fixed interest rates may be higher compared to variable rates when you first secure the loan. Lenders typically factor in potential interest rate increases when setting fixed rates, so you may end up paying more initially compared to variable rate options.
"Always assess the current interest rate environment. If rates are historically low, locking in a fixed rate could offer protection against potential future increases. Equally, if rates are already high or declining, a variable rate might be more advantageous. Consider your financial stability and your ability to withstand potential interest rate increases. If you have a tight budget or prefer financial certainty, a fixed rate can provide peace of mind. Also evaluate your long-term plans for the property. If you intend to sell or refinance soon, a fixed rate may not be as critical since you won't be holding the bond for the full term.
"At the end, the decision between a fixed or variable interest rate depends on your risk tolerance, financial goals, and the prevailing market conditions. Consulting with a bond advisor or financial professional can help you assess your options and make an informed decision based on your specific circumstances."
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