THE PROS AND CONS OF REFINANCING PAGE
3
1 26 MAY 2023 360 PROPERTY
PICTURE: OLEKSANDR PIDVALNYI /PEXELS
WAYS 6
to hang on to your home in these tough times
HOMEOWNERS are barely hanging on to their homes as it is but yet another interest rate hike is expected to come into effect this week. And it’s probably not the last.
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 rand more each month to meet their home loan repayments.
While some experts are hopeful that the rate will hold firm, most are expecting an increase this week – plus, this may not even be the last in this cycle.
“It’s likely that another two interest rate hikes are on the horizon, with the first anticipated to take effect at the end of May,” says Corné Welman, the franchise principal and certified financial planner at Consult by Momentum.
“If you bought a house for R2.5 million in 2020, 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,” she says.
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 instalments.
Banks will notice if you miss an instalment, so it’s best to be proactive before the situation worsens
BY BONNY FOURIE bronwyn.fourie@inl.co.zabring in some extra cash to help cover the higher costs of other debt repayments.
EXPERTS OFFER THE FOLLOWING ADVICE:
1Don’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 rand each month.”
Echoing this, Andrea Tucker, the 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.
Relook at your budget
2
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 cellphone 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.”
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, the regional director and chief executive of Re/Max of Southern Africa, says homeowners need to prioritise 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.”
Downscale
4
“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.”
Pay more to save more
6
Anything you save, if possible, should be diverted into your bond repayments, Tucker advises, adding that a little extra each month could make a significant difference and reduce your bond period and/or instalments.
Earn extra income
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
“Also look at other ways you can supplement your income. I would rather rent out a room in
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 says.
By downscaling, homeowners might also need to sell furniture and other items that might not fit into the new home. This could also
“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 payday 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.”
2 26 MAY 2023
Prioritise keeping up with the repayments on your home loan or risk losing the house and tarnishing your credit score. PICTURE:
KETUT SUBIYANTO/ PEXELS
All you need to know about refinancing your home
REFINANCING a home is seen as a last resort for many, but the recent succession of interest rate hikes and the rising cost of living has left many consumers in search of financial relief.
In a case where you wish to refinance your home, Grant Smee, the managing director of Only Realty Group, explains that you’ll apply for a new bond on the same property based on its current value rather than its valuation at the time of purchase.
By doing so, you gain access to equity: the difference between the amount owed on a home loan and the value of the property.
“There are various misconceptions surrounding the refinancing of a home, some of which have very little truth to them. One of the biggest misconceptions is that refinancing will make it harder to sell a home in the future.”
Refinancing your home, he says, will have no bearing on the sale or the value of the property.
“Homeowners refinance their homes for a variety of reasons. These include the ability to negotiate a new term or interest rate on a loan or to pay for renovations to increase the property’s long-term value. However, in the current economic climate, some homeowners are opting to refinance their home in order to pay off debt.”
Smee warns that refinancing doesn’t necessarily guarantee a big payday, and that when doing so, your credit score will
BY BONNY FOURIE bronwyn.fourie@inl.co.zabe reassessed. “In addition, you will be required to pay the same bond registration fees that you paid when you first purchased your home: the cost of bond registration, a bank initiation fee, deeds office fees and post, petties, Fica and other fees.
“The total cost of bond registration can run into the tens of thousands, and you may not break even or make a profit on refinancing if the value of your home has not grown substantially in the intervening years.
“Unfortunately, this is a likely outcome given that the national House Price Inflation (HPI) has slowed significantly in recent years.”
PROS AND CONS OF REFINANCING
Smee shares a list of the key positives and negatives:
PROS
1. Possibility of a lower interest rate
If you have an excellent credit score, refinancing your bond gives you the ability to renegotiate a more attractive rate from the bank.
2. Invest it back into the home Homeowners can use the cash equity they receive to invest in home upgrades such as solar power installations, increasing the value of their home should they choose to sell or refinance again in the future.
3. Debt consolidation
Refinancing can provide an opportunity for
homeowners to consolidate high-interest debt into one low-interest bond payment.
CONS
1. Long and costly process
If your home has not significantly increased in value, the cost and time spent on refinancing may not be worth the effort.
2. Credit score assessment
If your credit score has dipped since your initial home loan is granted, there is a chance that your new bond may be granted on even less favourable terms.
3. Reduce the equity in your home. Refinancing and cashing out your equity means that you are essentially borrowing against it, and thereby reducing its value.
Make sure you can survive interest rate increases
Affordability is a determining factor when it comes to looking for a home and applying for a bond, irrespective of the current interest rate, says Carl Coetzee, the chief executive of BetterBond. You should always ensure you will be able to afford the monthly loan payments over the repayment period.
To assist with this, BetterBond, as well as most banks and home loan providers, offer an online affordability calculator that provides an indication of what you can afford, taking into consideration monthly expenses and income.
“Make sure your credit score is in good
shape when you’re considering buying a home, as this will improve your chance of securing the lowest interest rate possible,” he adds.
You should also make sure you have enough cash to cover the bond and transfer fees when buying a home, and put down as much of a cash deposit as you can.
Adrian Goslett, the chief executive of Re/Max of Southern Africa, says homeowners and new buyers must ensure there is provision within their budgets to allow for an increase of at least 0.25% before an interest rate announcement. The announcements take place every second month.
“Interest rates tend to go up gradually, by around 0.25% or 0.5% at any given announcement, so budgeting for this ahead of time will be in your best interests.”
Staying the course
Homeowners may have to hold out a little longer for a reprieve from increasing monthly bond repayments, as at least one more interest rate hike could be on the cards, Coetzee says.
However, they and aspirant homebuyers should remember that property is a longterm game. Staying the course through periods of rising interest rates will give homeowners an edge when rates start to come down again, as they invariably do.
He says, there are signs of a pick-up in the residential property market, with Lightstone reporting a slight increase in national year-on-year house price inflation, now at 2.64%, for the first time since 2021.
“The strong possibility that interest rates are likely to drop during the second half of this year promises welcome financial relief for homeowners.”
3 26 MAY 2023 DISCLAIMER: The publisher and editor of this magazine give no warranties, guarantees or assurances and make no representations regarding any goods or services advertised within this edition. Copyright Independent Media. All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from Independent Media. The publishers are not responsible for any unsolicited material. Publisher Independent Media Executive editor Vivian Warby vivian.warby@inl.co.za Features Writer Bonny Fourie bronwyn.fourie@inl.co.za Design Kim Stone kim.stone@inl.co.za
Before taking this route, arm yourself with the facts and weigh up whether it will be the best possible course of action for you
SEE US ALSO WEEKLY IN THE INTEREST RATE HIKE:
Homeowners struggling to meet their bond repayments have options, but they need to know the pros and cons of each.
PICTURE: PICAS JOE/PEXELS
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2 BEDROOMS | 2 BATHROOMS
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• Open-plan lounge with parquet flooring
•Two double bedrooms with an en-suite bathroom complete with bath and shower. • Covered Parking bay. • Prepaid electricity
ERF: 1471m2 | HOME: 70m2 | RATES: R 450 p/m | LEVIES: R 1500 p/m
PLEASE CONTACT:
Collin Mbiriri on 071 879 8564 or email cmbiriri@gmail.com or mmnyandoro@gmail.com
8 26 MAY 2023
PRIVATE
SALE
9 26 MAY 2023
10 26 MAY 2023
PRIME LOCATION
OPPOSITE MELROSE ARCH ON ATHOLL-OAKLANDS ROAD!!
2 BEDROOM TOWNHOUSE WITH SOME APPLIANCES!!
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AUCTION OF: DOOR 3 MELROSE PLACE, 51 ATHOLL-OAKLANDS ROAD, MELROSE NORTH, GAUTENG
R50,000 registration fee, 10% deposit plus commission & Vat on commission. Bidders to register & supply proof of identity and residence.
www.vansauctions.co.za
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Regulations to Consumer Protection Act:
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OF
12 26 MAY 2023
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PROPERTY 360
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