Absa | Understanding interest rates on your home loan

When your home loan is registered, you have the option to keep a variable interest rate or apply for fixed interest rate. Understanding the difference between the two will help you decide which option is best suited to your needs.

Where do interest rates come from?

The interest rate on your home loan is linked to the prime lending rate, which can change. A variable interest rate changes with the prime lending rate, while a fixed interest rate stays the same for a specific period for which it has been granted.

Variable interest rate	Fixed interest rate
This is the default interest option on all our home loans. Your monthly repayments will go up or down depending on the prime lending rate. You could save money on your monthly repayments if the prime lending rate goes down – but you will pay more if the prime lending rate goes up.	You can apply for a fixed rate once your bond account is registered. We offer fixed interest rates for 12, 24, 36, 48 or 60-months. Your interest calculations will be fixed for the period you choose. A fixed interest rate lets you plan ahead because you will know exactly how much you will be paying. When the fixed interest rate period has expired, your Home loan will automatically revert to a variable interest rate.

Variable interest rate

Fixed interest rate

This is the default interest option on all our home loans.
Your monthly repayments will go up or down depending on the prime lending rate.
You could save money on your monthly repayments if the prime lending rate goes down – but you will pay more if the prime lending rate goes up.

You can apply for a fixed rate once your bond account is registered.
We offer fixed interest rates for 12, 24, 36, 48 or 60-months.
Your interest calculations will be fixed for the period you choose.
A fixed interest rate lets you plan ahead because you will know exactly how much you will be paying.
When the fixed interest rate period has expired, your Home loan will automatically revert to a variable interest rate.

Which is better for you?

This is entirely up to you and your circumstances. Look at the two different interest options then think about your needs and what you can and will be able to afford. A fixed rate allows you to plan with your home loan repayments. A variable rate means you could either save or you could pay more. Like all things financial the best thing to do is gather as much information as you can, plan your outlook realistically and don’t be scared to get some extra advice!