What to do if interest rates rise again
The pendulum swung after a season of historically low interest rates, dragging the country into a cycle of interest rate hikes.
Scheduled to meet again in May, the MPC may choose to raise interest rates further. Owners are advised to assess their finances prior to the announcement to ensure they can afford the potential increase.
At the previous MPC meeting, two members favored a 50 basis point hike in the repo rate while three were in favor of a 25 basis point hike.
To play it safe, Adrian Goslett, Regional Director and CEO of RE/MAX Southern Africa, recommends homeowners check what their monthly repayments would be if interest rates were to rise by 50 basis points at the next meeting.
“There are various online calculators that can help homeowners determine possible home loan repayments. BetterBond, for example, has a repayment calculator that helps homeowners figure out what their repayments will be based on the size of their home loan and their given interest rate,” Goslett explained.
Armed with this information, homeowners can then look at their budget to find the funds needed to pay the higher repayment amount if interest rates do indeed increase.
“Being well prepared in this regard can mean the difference between being financially secure or falling behind on repayments,” Goslett said.
On top of that, Goslett warned that unless the accompanying interest charges are fixed, repayments on other debts will also increase, should interest rates rise at the next MPC meeting. .
“The disposable income of those who have other forms of debt will decrease with each rise in interest rates. My advice, especially for those repaying a home loan, is to channel extra cash into other debt repayments ahead of the upcoming announcement,” he said.
Elaborating on this point, Goslett explained that when deciding which debt to settle first, it is advisable to go for the debt with the highest interest rate.
“Things like a car loan or a personal loan will often incur higher interest rates than a home loan, and it might be a good idea to pay off those debts as soon as possible,” Goslett suggested.
However, everyone’s situation is unique. Those wishing to obtain advice tailored to their circumstances are encouraged to speak to a professional financial adviser.
Those who are unable to meet their home loan repayments should speak to a real estate professional about other options available.
“Moving to a smaller, more affordable home could relieve financial pressure and create a less stressful home environment. You’ll never know what’s available unless you start looking. Having a reliable real estate expert while you search can also make the experience less stressful. For those feeling the financial pressure, I recommend talking to the professionals before things get out of hand,” Goslett concluded.