RATES: 'DON'T FIX YOUR BOND'

2009/08/14 04:40:00 PM
Jana Roos
Johannesburg - The SA Reserve Bank's (Sarb's) decision on Thursday to cut interest rates has ushered in a period when the cost of money is expected to remain low, which is why you should not fix the rate on your bond right now, said economists.
"Don't do it," said Dawie Roodt, economist at the Efficient Group. "If your interest rate is fixed and Sarb cuts rates further, you will end up paying even more." Banks usually allow their clients to fix their rates at a premium to the prevalent rate for a predetermined period.
Roodt said the only time you should consider doing this is when you can't afford to pay more than the fixed rate.
Michael Bouchier, MD of Credit Health, said bond holders may consider fixing their rates in three to six months' time, if there are indications that rates will rise. "The effects of the crunch will hit us hard then," he said. "This will be a rough year."
FNB property strategist John Loos said a rate cut shouldn't necessarily sway home owners one way or the other. "The important point is rather what your general appetite for risk is - and how near the edge you are financially."
Johan Rossouw, group economist at Vunani Group, agreed that risk tolerance should be the determining factor. However, in most instances a fixed rate would have cost you more by the time you reach the end of the predetermined time span, he said.
"In the long run you will probably see that you end up paying much less if you leave it at the fluctuating rate. It all comes down to cash flow - to fix it helps with peace of mind," Rossouw said.