Managing Your Home Loan through Rising Interest Rates
The covid era has had an unprecedented effect on all markets including the housing market. We are starting to see the effects of covid on the market through interest rates and inflation. The South African government will take all efforts to minimize the inflation and one of the primary ways of doing this is by increasing interest rates at the SA Reserve Bank. Economists predict some steep increases in the next year or two to come. This is great news for buyers as there could be some opportunities on the rise for those who are cash positive. But for the heavily mortgaged, your monthly repayments might get gloomy.
Historically we have seen how volatile the interest rate can be: in March 1998 the interest rate was 18% and within 5 months the rate moved to 24% moving up by 6% in a very short time.
An example of a 20-year loan for R2 million and the increase in your repayment amount from 9% - 15%:
|
Interest Rate |
Repayment amount |
|
9% - current interest rate at 26/07/2022 |
R17 995 |
|
10% |
R19 300 |
|
11% |
R20 644 |
|
12% |
R22 022 |
|
13% |
R23 432 |
|
14% |
R24 870 |
|
15% |
R26 336 |
That is a significant jump between 9% and 15% and for some people this could 'break the bank'.
Here are some tips on how to manage the interest rate hikes:
- Try increasing your repayment amount when the interest rate is low in order to reduce your outstanding balance. The ideal solution.
- Invest your spare cash into your bond. You will most probably get a higher rate of interest from your own mortgage than most other financial institutions products available and the cash is available to you within minutes if you wish. The ideal solution.
- Increase the length of your home loan term so you are able to manage your monthly repayments. A quick fix solution.
- Check with your financial institution can fix your interest rate for a period of time. A quick fix solution.
Some home loan tips:
- Try pay extra into your home loans monthly in order to reduce the monthly repayments and pay off your mortgage quicker.
- Put a bigger deposit down in order to minimise the loan amount required and therefore you will pay less interest on the loan.
- Always ask your bond originator to give you the best rate possible.
- Use your home loan as an investment product as it can give you a better rate of return than other investments and its TAX FREE!
- Aim to retire bond free!
- Always consult your financial adviser before making changes.
Contact us to get advice on how to best structure your property deal - 0722242777 or bianca@baeestates.com.
