Bonds: The Two Major Types, And Which One Suits You
Dec 11, 2009 Mortgage Loan
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.
Fixed rate bonds run between fifteen and twenty five years on average. Some people prefer fifteen year loans because they handle the higher equity and monthly payments. Short term fixed interest rate loans are ideal because the interest to be returned on the loan is lower.
Obviously, it would make a very ideal situation if clients could individual call out a number of years and the bank would offer a bond for that period, but that is not the case. Banks are willing to offer bonds in five year increments, staring with fifteen which is becoming more popular. Another common number is twenty five years which is a reasonably agreement between the bank and client.
While I mentioned earlier that most individuals are drawn to fixed rate bonds, it should also be noted that a certain group of people prefer interest rates that fluctuate. This is probably the appropriate and smart way to handle a loan. Individuals who prefer this type of bond can bend and break with the economy and enjoy more flexibility with the bank as the bond progresses.
Individuals also have the right to ask the band to adjust the interest rate of the bond. This scenario becomes viable when the market conditions improve and the high interest rate is not longer valid. The bank will obliged, but must charge a one time fee for this service.
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.
Graham McKenzie is the content syndication manager at BondCredit.co.za South Africans leading Bond Originator
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Tags: Bonds, finance, Homeloans, money, Mortgage Loan, Mortgages
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