Bonds, The two major types, and which one suits you better
If you wish to take out a bond than you have several options you must consider. For beginners, you need to understand the two major types of bonds, which are fixed rate interest bonds and bonds that constantly fluctuate the interest.
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.
Most fixed rate bonds run between twenty to thirty years, which is definitely a long time. A lot of people would rather stick to something around fifteen years, which is fine if they have a higher than average equity along with an income sufficient to meet the higher monthly payments.
Theoretically banks should tailor the loans around the customer's needs and concerns. I reiterate that theoretically it would be nice. Unfortunately banks are not willing to do business this way. They will only offer bonds based on five year increments and prefer a bond somewhere in the range of fifteen to twenty five years.
Individuals sometimes take a liking to bonds where the interest rate fluctuates because they can stay in close connecting with the interest payments. Some bonds begin with a fixed rate of interest over the first ten years or so. People like these bonds because they can calculate how much interest and how much interest they are paying.
For example, a homeowner can request their interest be recalculated. The bank is obliged to handle this request and will gladly adjust the interest rate for a fee.
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.
On average, people prefer fixed rate mortgages because they find them simpler and less hassle.
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.
Most fixed rate bonds run between twenty to thirty years, which is definitely a long time. A lot of people would rather stick to something around fifteen years, which is fine if they have a higher than average equity along with an income sufficient to meet the higher monthly payments.
Theoretically banks should tailor the loans around the customer's needs and concerns. I reiterate that theoretically it would be nice. Unfortunately banks are not willing to do business this way. They will only offer bonds based on five year increments and prefer a bond somewhere in the range of fifteen to twenty five years.
Individuals sometimes take a liking to bonds where the interest rate fluctuates because they can stay in close connecting with the interest payments. Some bonds begin with a fixed rate of interest over the first ten years or so. People like these bonds because they can calculate how much interest and how much interest they are paying.
For example, a homeowner can request their interest be recalculated. The bank is obliged to handle this request and will gladly adjust the interest rate for a fee.
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.
On average, people prefer fixed rate mortgages because they find them simpler and less hassle.
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
5:42 AM
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