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3. Fixed (interest rate) mortgage

Fixed rate mortgages only make up 3% of the market at present, this is partly due to falling interest rates over the last 8 years pushing homeowners onto variable rate mortgages. Traditionally the banks have only offered a maximum of 2 years fixed, however new lenders in the market have started to offer 5 and even 20 year fixes.

Important Factors

• Mortgages can be fixed for 2, 5 or 20 years
• Once entered into a fixed mortgage contract it is very expensive to get out of it
• For 2 year fixes the interest rate will be above prime
• If the client is fixing for 2 years and they have a current rate below prime less 1% then interest rates will have to move dramatically (more than 2%) in the next two years in order for it to be worth their while.

Tips for you the client

• Partial fix - With SA Homeloans you can fix part of your mortgage. For example you can fix 50% and have 50% on a variable rate. Therefore you have a 'partial hedge' against interest rate movements

• Understand why you want to fix - In the end it your decision, however try to establish why. Factors which may affect the decision are:

• In a 'low salary sector' (like teachers, nurses etc)
• Badly affected by the interest rate movements in the late 1990's
• Renting out the property and wants stability

Note: You shouldn't take out a 2 year fixed mortgage as they are very expensive, and is against all economists opinions (interest rates will not go up by over 3% in the next 2 years). However 5 and 20 year fixes have more merit, for certain types of clients.

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