Owning your first house and you need a Bond, What are my options?
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.
Most fixed rate bonds run between twenty to thirty years, which is definitely a long time. A lot of people would rather stick to something around fifteen years, which is fine if they have a higher than average equity along with an income sufficient to meet the higher monthly payments.
The ideal world would make it possible for the bank to tailor the loan around the individual's needs. Obviously this is not an ideal world, so banks must do what they must to protect their own needs. Banks offer bonds in five year additions, beginning with fifteen years and slowly moving up from there. Twenty five is the most common duration, although fifteen year bonds are finding a niche.
While I mentioned earlier that most individuals are drawn to fixed rate bonds, it should also be noted that a certain group of people prefer interest rates that fluctuate. This is probably the appropriate and smart way to handle a loan. Individuals who prefer this type of bond can bend and break with the economy and enjoy more flexibility with the bank as the bond progresses.
The homeowner may wish to request an adjustment with the interest based on the current economy. The bank is more than happy to meet this request, but will charge fees for doing so. It's worthwhile to make the request if you can afford the fees.
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.
A lot of people would rather avoid the risk of inflated interest rates, and instead turn to a fixed interest rate that they can depend on.
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.
Most fixed rate bonds run between twenty to thirty years, which is definitely a long time. A lot of people would rather stick to something around fifteen years, which is fine if they have a higher than average equity along with an income sufficient to meet the higher monthly payments.
The ideal world would make it possible for the bank to tailor the loan around the individual's needs. Obviously this is not an ideal world, so banks must do what they must to protect their own needs. Banks offer bonds in five year additions, beginning with fifteen years and slowly moving up from there. Twenty five is the most common duration, although fifteen year bonds are finding a niche.
While I mentioned earlier that most individuals are drawn to fixed rate bonds, it should also be noted that a certain group of people prefer interest rates that fluctuate. This is probably the appropriate and smart way to handle a loan. Individuals who prefer this type of bond can bend and break with the economy and enjoy more flexibility with the bank as the bond progresses.
The homeowner may wish to request an adjustment with the interest based on the current economy. The bank is more than happy to meet this request, but will charge fees for doing so. It's worthwhile to make the request if you can afford the fees.
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.
A lot of people would rather avoid the risk of inflated interest rates, and instead turn to a fixed interest rate that they can depend on.
About the Author:
Graham McKenzie is the content syndication manager at BondCredit.co.za South Africans leading Bond Originator
posted by Credit Counseling at
12:29 AM
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