Most people know that the topic of interest rates can strike fear into the bravest hearts.
Here are a few important things to know about interest rates before you sign on the dotted line, according to Steve van Wyk, Seeff’s MD in Centurion.
- Interest rates are dependent on the economy of the country and are determined by the Reserve Bank.
- South Africa has experienced hike rates in the past two years and this obviously affects homeowners and the monthly repayments of their home bonds.
- Although many people can make educated guesses on the short term regarding the interest rate, it is difficult to predict over the long term whether rates will increase or decrease.
- Prime interest rate is the standard interest rate and you will either receive this rate, a lower rate or a higher rate when applying for finance. The interest rate that you are given by a financial institution is based heavily on your risk profile – that is why it is very important to maintain a healthy credit record and to pay your accounts on time. Not having a credit record at all will also count against you.
- There are two types of interest rates – one is called a fixed rate and one is called a linked rate. If you decide on a fixed interest rate you and the bank agree on a certain percentage that you will pay regardless of what the Reserve Bank decides and what the interest rate does.
- If you choose to have an interest rate that is linked to the country’s economy it is always wise to pay more into your bond account than what is necessary in case interest rates do spike. By doing this you won’t feel the effects as intensely as those who were caught by surprise.
- When interest rates drop you will earn a little less, similarly you will earn a little more if interest rates increase. By using this logic it is not always best to opt for a fixed interest rate.
- If you are not satisfied with the interest rate that a financial institution has given you, you may shop around for a better rate. It is wise to contact your own bank as well as they will hopefully give you the best rate because you have been a loyal customer.