There are two ways to react when things are going well. Either you can relax and enjoy the season of good news, or you can seize it as an opportunity to make the inevitable challenging seasons ahead a little more bearable.
While South Africans may have celebrated January's Monetary Policy Committee announcement to keep the prime lending rate unchanged at 10.25% and the repo rate at 6.75%, homeowners should also prepare for the possibility of higher interest rates as the year progresses.
“I would recommend that homeowners tighten their belts now in preparation for incremental increases throughout 2019 by investing an extra 0.25% of their home loan instalment in an interest-bearing account," says Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett. "That way, if an increase occurs, homeowners will be prepared for living off a slightly smaller amount. Also, there will be a little emergency money set aside to provide for some financial breathing space if necessary.”
Alternatively, Goslett suggests that homeowners reinvest the money they would have spent if interest rates had increased straight back into their home loan.
“By means of an example, a R1.5 million property at a 10.25% interest rate will cost you over R3.5 million over a 20-year period of instalments. The monthly instalments would work out to be roughly R14 700," he says. "By putting in just an extra R300 per month towards your bond, the repayment period would be shortened by over a year, saving you R130 000 - enough to buy an entry-level car.
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"Putting in an extra R500 per month would shorten the repayment period by two years and save you around R200 000, which is enough to buy a slightly nicer car or put your kid through high school with some change to spare.”
Whatever you choose to do with the money you would have had to pay if interest rates had gone up, the key is that you do something with it that either saves or earns you money.
Choosing not to plan ahead is like choosing to stand still on a moving treadmill, says Goslett. "You might be standing just fine now, but that doesn’t mean you won’t stumble soon. When it comes to investments, it’s always better to be one step ahead than to allow yourself to get dragged under by late or part payments.”
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