With interest rates increasing by a substantial 0.75% for the second consecutive time this year, homeowners are understandably concerned about the impact this will have on their monthly bond repayments. Carl Coetzee, CEO of BetterBond, offers six ways to manage your bond when your repayments fluctuate.
- Affordability is always your main consideration when you buy and own a home, regardless of whether interest rates are going up or down. If you have a bond, be realistic about your monthly expenses and cut back on unnecessary costs. You could increase your loan repayment period to reduce your monthly repayment. While this will provide short-term relief, just remember that you will end up paying more interest on the total bond amount as you will add an additional 10 years (depending on the new loan period).
- Homeowners concerned about future rate increases may want to fix their interest rate. But bear in mind that while this will provide some short-term reassurance in that it will be easier to budget knowing that your interest rate won’t change for the next few years, it will be higher as a fixed rate poses more of a risk to the bank. The fixed rate can only be set for five years, and then you will have to renegotiate for a new fixed rate. You also won’t benefit should interest rates drop during this time.
- Manage your debt. Again, as this should always be a consideration when buying or owning a home, it is one of the reasons why a credit check is done when you apply for pre-approval and when you apply for a bond. Now is not the time for homeowners concerned about their monthly bond repayments to buy other big-ticket items on credit. Instead, pay off as much of your credit card debt and accounts as possible, so you can free up finance to pay off your bond. Another option, if you have paid off a significant amount of your bond, is to finance your short-term debt by consolidating it into your home loan. This may offer some relief on your monthly financial commitments, but will cost you more in the long run as you will take longer to pay off your debt and be paying more interest. Again, be mindful of the risks before opting for a quick-fix solution to meet your bond repayments.
- Downscale. If the bond repayments on your current home are too onerous, consider selling and investing in more affordable property with manageable bond repayments. Property is a resilient investment so stay in the game, but buy a property that is within your current financial capabilities. Don’t hang onto a property for the sake of owning a home. While selling and buying do come with their own costs, it could relieve some of the financial pressure of paying off a more expensive bond. You can still own your own home - just one that is more within financial reach.
- If you are planning to move, consider a sectional title property that has fixed levies, so you can budget according. The maintenance of communal areas is included in this levy, so you won’t have to spend extra each month on gardening services or other household repairs.
- If you are really struggling to repay your bond, consider letting out a portion of your home - such as an outside room or a granny flat - to generate rental income that could contribute toward your monthly bond repayment. Another option is to spend a week every month or two with family so that you can list your home on Airbnb to generate additional income.
