What goes up, must eventually go down, but many of us are battling to keep our head above water as interest rates keep rising. It’s stressful for sure, particularly if you own property and your bond repayments keep climbing. Your monthly budget may be stretched to its limit so how can one weather the storm? Six tips for survival:
- Consolidate your debt
If you’re being weighed down with a stack of shorter term debts, you could consolidate them all in your bond – i.e. increase your bond and use the cash to settle all the smaller debts. Then you would just have one big debt to pay every month. You need to be able to afford the higher bond repayment and you’ll need to have enough equity in your property (i.e. the difference between the value of the property and your outstanding bond). Just be aware that you’ll be exchanging short term debt for long term debt as your bond is repayable over a much longer period of time compared to short term debts. You’ll also pay more in interest on this short term debt in the long run.
- Increase your repayment period
You may have been paying off on your bond for a number of years already so you can consider increasing the outstanding term to the original length, or even extending it. Your repayments will be stretched over a longer period of time, reducing your monthly repayment amount but you’ll pay more interest over the longer term. But if it means that won’t lose your home, it’s worth considering.
- Fix your interest rate
A fixed interest rate means that your rate and repayment will remain constant, whether interest rates move up or down. Fixed interest rates are generally a bit higher that the current variable interest rate, as it poses a greater risk to the bank, and they are fixed for a period of 12 to 60 months. The advantage of a fixed interest rate is that you can budget properly without surprises. The downside is that if interests rates drop, you’ll be left paying with a higher interest rate and repayment every month.
- Simplify life
Often one just has to bite the bullet when it comes to rising interest rates and looking at your budget, it’s probably not the only debt you have. You can get rid of your smaller debts such as store cards by paying them off and not incurring any further debt, and if you’re paying off a car, consider selling it and down scaling to a cheaper option. This can free up cash flow that will help you weather the storm.
- Generate some cash from your home
Do you have any extra space you can rent out? There’s often a need for storage space or whole or part of a garage that you can rent out. You can consider listing your home for location shoots. It’s a relatively painless way to make extra money and agencies (such as Filmplace or Cherry-picked) are always scouting for new and exciting locations. There are also the obvious options such as renting out a room or starting a home based side hustle such as baking or furniture upcycling if you’re good with your hands.
- Look at your insurance premiums
If you have a bond, you’ll have homeowners insurance which is a policy which covers the building structure of a home against accidental loss or damage caused by fire, theft or natural disasters like floods. You may even have insurance for your possessions and contents of your home. Shop around each year as these premiums go up atomically and we often just accept this. Make sure you’re getting the best deal – saving a few hundred rand can make a huge difference to your budget and can help weather higher bond repayments.
