Examine all options to get the best out of your home loans

IN THIS time of rising interest rates many consumers are reaching for their calculators to work out just what the increase will cost them.

Although the increase applies to all loans, most people will be thinking about their homes and just what could happen if rates continue to rise this year. To make it through uncertain economic times when demands on personal finances never seem to let up, you need to find ways of reducing the impact of interest rate increases on the family, says Steven Barker, head of home loans at Standard Bank.

“To survive rate increases you need to look at all available options. The solution could be as simple as budgeting more effectively, or looking to other solutions such as fixing interest rates if this service is offered by your financial institution. The path you choose will depend on individual circumstances and requirements.”

Things to consider are: find out exactly what the rate increase will mean to your monthly bond payment. Once you know how much more you will be paying, you can select an appropriate approach.

Think about the possibility of more increases occurring and take steps to cope.

“Once these two issues have been considered, turn towards your household budget and identify where you can save. It is often the small things that can make a difference and a minor sacrifice can make that interest rate increase manageable,” says Barker.

He offers the following advice. Keep a record of everything you spend over a month. Examining your expenses critically will reveal where money can be saved. Reducing spending on non-essentials and even sacrificing that daily cup of coffee can make a huge difference – especially when you cost these items out over 12 months. For example, you can save about R5 000 a year just by not buying a coffee at work every day.

See if your budget savings can enable you to pay more than required into your bond. This will deliver short-term and long-term benefits. In most cases it will insulate you from further rate increases, as what you manage to pay in could exceed a new rate increase. In the long-term, and depending on the size of the increased contribution, you can shave many years off your repayment period and save thousands on interest payments.

Allocate a portion of any extra income, or an annual bonus payment, to your bond. This can shield you from interest rate increases and be a great investment in your future.

“South Africans have for many years benefited from rates that have been consistent and fairly low. While this is not the case at the moment, and although it is difficult to predict just how high rates will go, it is certain that as the economy improves, so the possibility of rates decreasing is enhanced,” says Barker.