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 are popular among home owners because the rate will never change. Basically most owners do now want to do the math and sit down and constantly analyze a bond with a fluctuating interest. There is nothing wrong with that.
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.
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.
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.
Both types of bonds offer different advantages. Generally people are inclined to stick with a fixed mortgage rate and sacrifice the chance the interest rates will drop throughout the years.
Fixed rate bonds are popular among home owners because the rate will never change. Basically most owners do now want to do the math and sit down and constantly analyze a bond with a fluctuating interest. There is nothing wrong with that.
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.
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.
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.
Both types of bonds offer different advantages. Generally people are inclined to stick with a fixed mortgage rate and sacrifice the chance the interest rates will drop throughout the years.
About the Author:
Graham McKenzie is the content syndication manager at BondCredit.co.za South Africans leading Bond Originator
posted by Debt Consolidation Loan at
5:24 AM
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