select
|

Take action now before interest rates increase

Although the sudden steep increases of the 1990s may not be on the cards, it is to be expected that interest rates will gradually increase over the next few years, says Shaun Rademeyer, chief executive of BetterBond Home Loans mortgage origination group.

“And given that most homeowners will still be repaying their home loans during this period, they urgently need to start making provision for higher rates and so minimise the impact.”

First, he says, homeowners need to work out what increased interest rates could actually cost them. For example, the most recent 0.25 percent increase may only have added R162 a month to the monthly repayment on a R1 million home loan, but a few more small increments like that could end up having a major impact on your finances and home ownership plans.

“As it is, the prime interest rate (and variable home loan interest rate) is 0.75 percentage points higher now than it was at the start of the year, and even if it were only to rise by a total of another two percentage points over the next two years, that would add R1 334 to the current monthly repayment on a R1m bond. And that could make all the difference to your ability to pay off your bond in 15 years instead of 20.”

Second, Rademeyer advises, you need to assess whether you will be able to afford the higher repayments.

“You need to review your household budget as it stands currently, and see how it would stand up to any rate increases, bearing in mind that the repayments on other debts such as cars and credit cards also go up when rates rise.

“You should also not just assume that your income will increase sufficiently to take care of any rate increases that may occur over the next couple of years. Slow economic growth and tough times for businesses can play havoc with employment prospects and annual salary increases.”

The chances are, he says, that your review will show that if you had to cope with a two percentage point increase right now, you would be in trouble, and might even have to sell your home or face foreclosure. So your next move should be to make an immediate start on avoiding this possibility and not wait for the worst to happen before you react.

Actions to take, says Rademeyer, could include:

Depositing some of your savings into your bond account to reduce the capital amount outstanding and immediately lower the minimum monthly bond repayment to which any future rate increases will be applied. The added advantage of this is that your savings will then effectively be earning interest, tax-free, at whatever your current home loan rate is.

Immediately reducing your spending and putting whatever spare cash you can into your bond account, including any bonuses you may receive. Even a few hundred rand a month paid now could help to neutralise the effect of future interest rate increases – and even if these don’t materialise, you will reap the benefit of a shorter loan repayment period and save thousands of rands worth of interest.

On the other hand, he says, it is unlikely to be worth your while to try to fix your home loan interest rate at this point, or to switch your home loan to a different lender.

“The key, quite simply, is to use whatever time we have now until the next rate rise to reduce your debt with determination.”


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 17 Jan 2018
      While the current property market may still favour buyers, it doesn’t mean that they shouldn’t be well prepared before putting in an offer to purchase.
    • 17 Jan 2018
      Lightstone lists Blair Atholl as the most expensive suburb with an average house price of R11.2 million, followed by Westcliff (R10.5 million), Dunkeld (R9.3 million), Sandhurst (R9.1 million) and Inanda (R7.2 million).
    • 17 Jan 2018
      As it currently stands, there are four main ways in which a home can be bought in South Africa, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who adds that deciding in which legal entity to purchase the property is not a decision that should be entered into lightly, as each has its pros and cons.
    • 16 Jan 2018
      The start of the new year is symbolic of new beginnings. A good time to take stock of one’s possessions as well as how necessary they actually are. However, seeing as the process may appear daunting – a plan goes a long way.
    • 16 Jan 2018
      The Western Cape is still in the throes of a severe drought and many households have to adjust the way they use and save water. It is a little more complicated in sectional title schemes, however, as it is not that easy to implement grey water systems for multiple users and it is also difficult to monitor water usage accurately if there are no separate water meters
    • 15 Jan 2018
      In ideal rental situations, when a lease is signed the tenant will stay for the full duration of his lease without any complications and the landlord will uphold his obligations, creating a win-win situation for tenant and landlord.
    • 15 Jan 2018
      The Atlantic Seaboard’s housing market has stoically withstood the brunt of the growing economic and political instability, consistently achieving double digit growth way above the national average, however, in 2017 South Africa’s most resilient market finally began to yield to the pressure.
    • 15 Jan 2018
      Sectional title insurance can be a little confusing and, as a new owner, you may be tempted to just assume your body corporate has you covered. While this may be the case, understanding the extent of your coverage and your personal liability is the only guaranteed way to protect yourself against potentially costly oversights.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK