Homeowners - what to do when the interest rates climb higher

The pendulum has swung following a season of record-low interest rates, moving the country into a cycle of interest rate hikes. Set to meet again in May, the MPC may choose to hike interest rates further. Homeowners are advised to evaluate their finances ahead of the announcement to make sure they can afford the potential increase.

At the previous MPC meeting, two members preferred a 50 basis point rise in the repo rate while three were in favour of the 25 basis point increase. To play it safe, Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, recommends that homeowners check what their monthly repayments would be if interest rates were to rise by 50 basis points at the next meeting.

“There are various online calculators that can help homeowners work out the possible repayments on a home loan,” Goslett explains.

Equipped with this information, homeowners can then examine their budgets to find the necessary funds to afford the higher repayment amount if interest rates do indeed increase. “Being well prepared in this regard can mean the difference between being financially secure or falling hopelessly behind on repayments,” says Goslett.

In addition to this, Goslett warns that, unless the accompanying interest rate charges are fixed, the repayments on all other debts will also increase should interest rates climb at the next MPC meeting. “The disposable income for those who carry other forms of debt will shrink with every interest rate hike. My advice, especially for those who are paying off a home loan, is to funnel any extra cash towards those other debt repayments ahead of the coming announcement.”

Elaborating on this, Goslett explains that when deciding which debts to settle first, it is advisable to go for the debt with the highest accompanying interest rate charge. “Things such as a car loan or personal loan will often carry far higher interest rate charges than a home loan, so it might make sense to try and pay off these debts as soon as possible,” Goslett suggests.

However, everyone’s situation is unique. Those who would like advice specific to their circumstances are encouraged to speak to a professional financial advisor. Those who are unable to keep up with the repayments on their home loan should also speak to a real estate professional to find out what other options are available to them.

“Moving to a smaller, more affordable home might relieve the financial pressure and create a much less stressful home environment. You’ll never know what’s out there unless you start searching. Having a reliable real estate expert at your side while you search can also make the whole experience a lot less stressful. For those who are feeling the financial pressure, I would highly recommend speaking to the professionals before things get too out of hand,” Goslett concludes.