How to outsmart the possible effects of junk status on your home loan
Here are some tips to avoid being caught unawares if or when interest rates go up.
The downgrade to junk status will affect South Africans through the interest due on their outstanding debts as the South African Reserve Bank will probably be forced to increase interest rates.
This will put tremendous pressure on consumers’ ability to repay their debts including their home loan.
Reduce your debt levels
South Africans can prepare themselves financially by reducing their short-term debt by increasing repayment installments to reduce their outstanding capital debt faster and by saving.
Become savings conscious
- Cut your expenditure whenever and wherever you can
- Stick to the necessities when grocery shopping
- Drink that coffee at home or at work
- Make lunch in advance for school and work
- Arrange lift clubs or use public transport
- Sell everything you haven’t used in a year
- Think about whether your hobby can generate an income
- Do things with the kids that don’t cost money
Pay a bigger deposit when purchasing a home
Allocate as much money as you can to your deposit. It is more likely that banks will approve your home loan if you pay a bigger deposit than required. For instance a R20 000 deposit on a R1 million home loan will reduce your total repayments by R41 656.
Negotiate a lower interest rate
Use an expert mortgage originator to negotiate the lowest possible interest rate. A small reduction will make a significant difference in your total repayments.
Reduce the term and repayments on your home loan
- Think about the total value of your repayments over the full term of the loan not just about your monthly bond payments.
- Using the Homes calculator you can see that on a house bought for R1 000 000, paid off at R8 678 monthly over 20 years at an 8.5 percent interest rate, after 20 years, the buyer will have paid the bank R2 082 776.
- By paying extra money into your bond you can significantly reduce the term and cost of your home loan. Even R200 a month will reduce the term of the repayments by more than a year and the total paid by R71 931.
- Pay some of any windfalls that come your way into your bond. Having an access bond means that you can withdraw money if you should need it. Paying extra money into your bond reduces the interest from that point on.
Looking for that dream home in Benoni? Remember to visit our Homes platform.
