With the recent fuel price increases, inflation increases on the horizon then perhaps it is time to consider fixing your bond's interest rate. According to FNB, if you fix your bond for 12 months you will pay an additional 35 basis points. If the first rate hike is 50 basis points in November that could be a smart move.
For 18 months you will pay an additional 70 basis points. Maybe not such a bad option. The first rate hike will put you nearly in the money and if Barclays Wealth's predictions of 200 basis points is correct, you could be paying 130 basis points less than a prime-linked mortgage for a while.
For 24 months you will pay 115 basis points extra, and if you want to fix your mortgage for five years you will pay an additional 225 basis points. That will actually increase your mortgage by 25%, which is steep but it could pay off if we see sustained higher interest rates until 2016.
But the really smart move is to take the 225 basis point increase the bank would charge you (R1 875 on R1-million) and pay that into your mortgage every month -- you will be paying off capital, not interest, so therefore increasing your asset base, not the bank's.
It will take at least 18 months to two years for actual interest rate hikes to reach that level, and if they surpass it, the equity you have built into your mortgage will give you credibility with the bank if you need to renegotiate.
The worst thing you can do is nothing. Interest rates are going up and you need to bulletproof your finances now.
