Homeowners are barely hanging on to their homes as it is, yet the interest rate has been hiked again.
The string of increases is taking its toll on South Africans, with homeowners particularly hard hit as they have been forced to cough up hundreds or thousands of Rands more each month to meet their home loan repayments.
While many experts are hopeful that the rate will now hold firm, there are some concerns that that it may go up again in July.
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If you bought a house for R2.5 million in 2020, Corné Welman, franchise principal and certified financial planner at Consult by Momentum, says your bond repayment might have been around R20 000 per month, depending on the repayment period and the rate granted to you by the bank.
“Fast forward to 2023, and you would now be paying close to R28 000 each month on that same bond; an additional R8 000 that you would need to find somewhere.”
It is, however, important to know that there are options available to homeowners who are struggling to pay their bonds. There are also steps that homeowners can take to help them pay the higher home loan amounts.
Experts offer the following advice:
1. Don’t stick your head in the sand
Don’t let the due date for your monthly payment come and go, or ignore your bank’s calls, Corné says.
“Be proactive about the situation and reach out to your bank before missing a payment, while your credit standing is still good. Sometimes banks are open to renegotiating the interest rate they offer you on your mortgage, which might save you a couple of thousand Rands each month.”
Echoing this, Andrea Tucker, director of MortgageMe says it is best to confront the realities and speak to your bank as early as possible about your concerns around rising bond repayments.
“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 so rather be proactive about a difficult repayment situation before you find yourself in the middle of it, she says.
2. Relook your budget
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, Tucker says, 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.”
Corné agrees and says you should interrogate your budget to see what you might be able to trim or cut that would reduce your monthly expenditure and free up funds, which you could channel towards your bond repayment.
3. Earn extra income
“Also look at other ways you can supplement your income. I would rather rent out a room in my house on a short-term basis to supplement my income than lose my home,” Corné adds.
Although it can be difficult given the last steep interest rate increase, Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says homeowners need to prioritize keeping up with the repayments on the home loan or risk losing the house and tarnishing their credit score.
“If things get too tight, act sooner rather than later. Rent out a spare room in your home to help you afford the repayments or downscale to something more affordable before things get too out of hand.”
4. Downscale
Living in a smaller space is far more cost-effective, which could help struggling homeowners keep up with the rising cost of living.
“Larger homes often mean running up larger water and electricity bills than a smaller home would. That translates into more disposable income every month for those who choose to downscale,” Goslett explains.
By downscaling, homeowners might also need to sell some furniture and other items that might not fit into the new home. This could also bring in some extra cash to help cover the higher costs of other debt repayments.
“When moving to a smaller home, every square metre becomes essential. This usually means fewer spaces to clean and less space in which to store unnecessary items, which could create a less stressful, less cluttered home,” he adds.
5. Change your repayment period
Another option is to extend your bond repayment period, which will bring down your monthly payments. However, Corné warns that this should be a last resort.
“I would suggest that you first try to see where you can cut to make the current loan repayments. Extending the mortgage period means that you will be paying for your home for a longer time and paying more in interest.”
6. Pay more to save more
Anything you save, if possible, should be diverted into your bond repayments, Tucker advises. 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 pay day into a savings account – and then transfer that across to your bond at month end. If it’s not there from the beginning of the month, you probably won’t miss it.
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