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Friday, February 20, 2009
Bonds fall into two different categories ? those that are based on fixed interest rates and interest rates that fluctuate during the loan's duration dependant on terms agreed by the lending bank and borrower where the loan was issued. Fixed interest rates are more popular, because the borrower can stay connected with the loan.
Fixed rate bonds have existed for years and will continue to exist, because individuals, especially home owners, want a steady interest rate. They are not willing to do the math and break down the interest throughout the years. They just want one, solid rate of interest.
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.
The ideal world would make it possible for the bank to tailor the loan around the individual's needs. Obviously this is not an ideal world, so banks must do what they must to protect their own needs. Banks offer bonds in five year additions, beginning with fifteen years and slowly moving up from there. Twenty five is the most common duration, although fifteen year bonds are finding a niche.
Others prefer bonds where the interest rate constantly is adjusted. This is smart because sometimes the interest rate is fixed to begin with and slowly will adjust over time. Banks are more inclined to stay flexible with individuals who take out loans with adjustable interest and will accommodate their needs.
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.
On the opposite end, the bank will constantly adjust the interest based on a decreasing economy. These increased interest rates are tough to handle but it comes with taking out a loan.
Both types of bonds offer different advantages. Generally people are inclined to stick with a fixed mortgage rate and sacrifice the chance the interest rates will drop throughout the years.
Fixed rate bonds have existed for years and will continue to exist, because individuals, especially home owners, want a steady interest rate. They are not willing to do the math and break down the interest throughout the years. They just want one, solid rate of interest.
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.
The ideal world would make it possible for the bank to tailor the loan around the individual's needs. Obviously this is not an ideal world, so banks must do what they must to protect their own needs. Banks offer bonds in five year additions, beginning with fifteen years and slowly moving up from there. Twenty five is the most common duration, although fifteen year bonds are finding a niche.
Others prefer bonds where the interest rate constantly is adjusted. This is smart because sometimes the interest rate is fixed to begin with and slowly will adjust over time. Banks are more inclined to stay flexible with individuals who take out loans with adjustable interest and will accommodate their needs.
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.
On the opposite end, the bank will constantly adjust the interest based on a decreasing economy. These increased interest rates are tough to handle but it comes with taking out a loan.
Both types of bonds offer different advantages. Generally people are inclined to stick with a fixed mortgage rate and sacrifice the chance the interest rates will drop throughout the years.
About the Author:
Graham McKenzie is the content syndication manager at BondCredit.co.za South Africans leading Bond Originator
posted by Credit Counseling at
5:20 AM
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