I want to own a home: Which bond works for me?
Bonds fall into two different categories ? those that are based on fixed interest rates and interest rates that fluctuate during the loan's duration dependant on terms agreed by the lending bank and borrower where the loan was issued. Fixed interest rates are more popular, because the borrower can stay connected with the loan.
Fixed rate bonds have existed for years and will continue to exist, because individuals, especially home owners, want a steady interest rate. They are not willing to do the math and break down the interest throughout the years. They just want one, solid rate of interest.
Fixed rate bonds range in duration from twenty to thirty years, however some people bypass the norm by taking out a fifteen year bond. This is possible if the individual has a higher than normal equity and enough income to meet the higher monthly payments.
Obviously, it would make a very ideal situation if clients could individual call out a number of years and the bank would offer a bond for that period, but that is not the case. Banks are willing to offer bonds in five year increments, staring with fifteen which is becoming more popular. Another common number is twenty five years which is a reasonably agreement between the bank and client.
Others prefer bonds where the interest rate constantly is adjusted. This is smart because sometimes the interest rate is fixed to begin with and slowly will adjust over time. Banks are more inclined to stay flexible with individuals who take out loans with adjustable interest and will accommodate their needs.
Individuals also have the right to ask the band to adjust the interest rate of the bond. This scenario becomes viable when the market conditions improve and the high interest rate is not longer valid. The bank will obliged, but must charge a one time fee for this service.
But on the contrary, bonds will adjust to meet higher interest rates. This common up and down pattern with interest rates is something the bond holder constantly battles with.
On average, people prefer fixed rate mortgages because they find them simpler and less hassle.
Fixed rate bonds have existed for years and will continue to exist, because individuals, especially home owners, want a steady interest rate. They are not willing to do the math and break down the interest throughout the years. They just want one, solid rate of interest.
Fixed rate bonds range in duration from twenty to thirty years, however some people bypass the norm by taking out a fifteen year bond. This is possible if the individual has a higher than normal equity and enough income to meet the higher monthly payments.
Obviously, it would make a very ideal situation if clients could individual call out a number of years and the bank would offer a bond for that period, but that is not the case. Banks are willing to offer bonds in five year increments, staring with fifteen which is becoming more popular. Another common number is twenty five years which is a reasonably agreement between the bank and client.
Others prefer bonds where the interest rate constantly is adjusted. This is smart because sometimes the interest rate is fixed to begin with and slowly will adjust over time. Banks are more inclined to stay flexible with individuals who take out loans with adjustable interest and will accommodate their needs.
Individuals also have the right to ask the band to adjust the interest rate of the bond. This scenario becomes viable when the market conditions improve and the high interest rate is not longer valid. The bank will obliged, but must charge a one time fee for this service.
But on the contrary, bonds will adjust to meet higher interest rates. This common up and down pattern with interest rates is something the bond holder constantly battles with.
On average, people prefer fixed rate mortgages because they find them simpler and less hassle.
About the Author:
Graham McKenzie is the content syndication manager at BondCredit.co.za South Africans leading Bond Originator
posted by Credit Counseling at
5:33 AM
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