The most recent interest rate hike took many people by surprise, including financial pundits and economists. Expecting a 0.25% increase but getting 0.50% has put further pressure on anyone with any kind of debt and has pushed many homeowners to their financial limits. Andrea Tucker, Director of MortgageMe advises against any kind of knee-jerk reaction in these financially challenging times. “Your property represents a significant asset on your balance sheet, and there are many options open to homeowners to manage higher interest rates and the higher repayments on their home loans,” she says. “This is a critical moment to explore strategies to safeguard your home before reaching a final decision to sell – which could possibly cost you more in the short term.”
Talk to your bank
You are not alone in feeling the pinch. Rising interest rates have far-reaching consequences for millions of South Africans, and banks are well aware of the impact of these difficult economic times. Above all, Tucker says it’s best to confront the realities and speak about your concerns around rising bond repayments to your bank as early as possible. “Banks don’t want to repossess properties; this is really their last resort, which can be avoided by homeowners communicating with their bondholder prior to them missing one or multiple monthly instalments. Rather meet and discuss options such as a short-term payment holiday, the repayment of interest only for a period, or a renegotiation or restructuring of the terms of your home loan. Banks will notice if you miss payments – rather be proactive about a difficult repayment situation before you find yourself in the middle of it,” adds Tucker.
Spring clean your financial cupboard
In order to ensure that you can meet the most essential repayments in your constrained household budget, including your bond, now might be a good time to do a little financial spring cleaning. Review all your debit orders and cancel any services that you rarely use or no longer need or could do without for a period of time. These might include subscriptions to multiple entertainment streaming platforms, the gym or other membership fees, or cell phone contracts. “Also, consider cancelling any high-interest incurring store cards or credit cards, if possible. You will be surprised how much you can shave off your outgoings in this way,” she says.
Pay more to save more
Anything you save, if possible, should be diverted into your bond repayments. Adding a little extra each month can make a significant difference and reduce your bond period and/or instalments. By paying more every month, or even whenever you can, you may also be able to release cash amounts through your access bond facility. A good idea is to set up a recurring transfer out of your account on payday into a savings account – and then transfer that across to your bond at month end. If its not there from the beginning of the month, you probably won’t miss it.
Buying and selling in a period of high-interest rates
Tucker says for those looking to buy a property, current and future interest rates are a big factor to consider. “You can mitigate the risk of fluctuating rates and repayments by negotiating the best bond deal to suit your budget; a rate below prime is first prize, but you can also look at a fixed mortgage rate, which might benefit your present circumstances. You should, however, consider the impact later on of pegging your rate, but a fixed rate will give you certainty for now.”
She notes that putting down a big deposit is always sensible as it reduces the amount homeowners need to repay on a bond and may secure a more favourable lending rate. “Saving now can reap rewards later. Overall, a bigger deposit can help you achieve more financial stability in the long run.”
Before selling a property voluntarily, homeowners should weigh up the considerable short-term sale costs, including estate agent and legal fees, and bond cancellation fees that are associated with a sale, against taking as many measures as possible to avoid being compromised into a sale. And if you’re thinking of selling and downscaling to a smaller property, there are costs on the buy side of the equation too.
“We are all tightening our belts and trying to find ways to make less money go further. With a bit of determination and a little sacrifice, keeping your head above the swirling financial waters and keeping your home is achievable,” says Tucker.