Quit spending, homeowners advised

Rudi Botha

For homeowners with bonds, the interest rate increases announced by the SA Reserve Bank this week will add at least R16.60 per R100 000 borrowed to their monthly repayment.

So on a 20-year loan of R1 million, for example, the monthly instalment will rise by at least R166 and possibly more, depending on the current interest rate the borrower is paying.

And the interest rate decision, which will see the repo rate rise to 6.75% and the prime rate to 10.25%, will also mean higher monthly repayments on every other form of debt, including car finance, credit cards, store accounts and personal loans.

Coming on the back of an inflation rate increase to 5.1% in September (August: 4.9%), this suggests a pretty lean festive season for most households – and is all the more reason for consumers to watch their Christmas spending very carefully.

Many households are already under great financial pressure due to the petrol price increases this year and the increase in VAT, which have a knock-on effect on the prices of almost all other goods and services.

So to now have to pay more on every debt instalment as well, it will be very difficult.

What’s more, the January increases in everything from school fees to medical aid subscriptions are not far off, so we are really urging consumers not to overspend or run up any more debt in the next few weeks – even if it means “missing out” on some enticing deals and seasonal special offers.

In addition, we strongly suggest that if you do get a bonus this December, you use it to reduce whatever debt you have.

If you are a homeowner, for example, the best thing you can do with it is to put it into your bond account and reduce the capital portion of your homeloan. You will thank yourself next year when your monthly instalments are lower – especially if interest rates continue to rise, as many experts are predicting they will.

Meanwhile, the rate increases will also make it more difficult for first-time home buyers to save up deposits and to qualify for bonds. They will most likely either have to postpone their purchase or opt for a cheaper home.

Rudi Botha is chief executive of BetterBond

If you do get a bonus this December, use it to reduce whatever debt you have. Moneyweb

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