Home Loan Interest Rates Explained: Fixed vs Variable for Homeowners
Fixed or Variable Home Loan Interest Rates: What Homeowners Should Really Consider
With the cost of living continuing to rise, inflation remaining a concern, and another repo rate announcement on the horizon, many homeowners and aspiring buyers are once again questioning whether fixing their home loan interest rate is the right move.
A fixed interest rate offers predictability. Your monthly bond repayment remains the same for an agreed period, regardless of interest rate movements. For some, this stability provides peace of mind and helps with budgeting. For others, however, a fixed rate may come at a cost and could limit flexibility in the long run.
The reality is that there is no universal answer. Every homeowner’s financial position, risk tolerance, and long-term plans are different. Choosing between a fixed and variable rate should be a considered financial decision rather than a reaction to market headlines.
How home loan interest rates work
Most home loans are initially approved at a variable interest rate. After registration, homeowners can apply to their bank to fix the rate for a specific period, subject to approval and the bank’s current offering. Before making this decision, it’s important to understand how interest rates are structured and what influences them.
Understanding the key rates
Repo rate: Set by the South African Reserve Bank, this is the rate at which commercial banks borrow money from the central bank.
Prime lending rate: This is the rate banks charge consumers and includes margins for risk and operational costs.
Your bond rate: The actual rate on your home loan is influenced by your credit profile, affordability, repayment behaviour, and the bank’s internal criteria.
At present, the prime lending rate is 10.25%. When the repo rate changes, banks typically adjust the prime rate accordingly, directly affecting variable-rate home loans. Even small increases can meaningfully impact monthly repayments over time.
The value of paying more than the minimum
If your home loan is on a variable rate, making additional payments whenever possible can significantly strengthen your financial position. Extra contributions reduce the capital balance faster, decrease the total interest paid over the life of the loan, and build equity in your property.
That equity can become a valuable safety net. Should financial strain arise later, homeowners who have built equity may have the option to refinance or renegotiate their loan terms, an option that is far less accessible when only minimum payments have been made.
Important factors to weigh before fixing your rate
Fixed-rate duration Fixed interest rates are usually offered for periods of up to five years. On a long-term bond, this means you’ll need to renegotiate your rate once the fixed term expires, potentially at higher or less favourable rates.
Bond term length The longer your repayment period, the more sensitive your loan is to interest rate changes. Small adjustments can accumulate into significant increases over time.
Interest rate negotiations Bond originators can submit applications to multiple banks and negotiate on your behalf. By creating competition between lenders, services like MyProperty Home Loans can often secure better rates or concessions than applying directly to a single bank.
Affordability over prediction Fixing your interest rate shouldn’t be about guessing the next repo rate move. Fixed rates are typically priced with future expectations already built in. The real question is whether your repayments remain manageable under different economic conditions.
Choosing what works for you
While interest rate announcements and market trends matter, affordability should always be the deciding factor. Before making a decision, consider the following steps:
- Use a bond repayment calculator to model different interest rate scenarios
- Consult a bond originator or financial professional for personalised guidance
- Review your household budget to ensure you can absorb potential increases
Property ownership is a long-term commitment, and interest rate changes are inevitable over the lifespan of a home loan. Rather than trying to time the market, the most sustainable approach is to plan for uncertainty and choose a structure that supports your financial goals, comfort level, and long-term security.