My fellow South Africa dwellers it looks like we are approaching a 5 year-peak in interest rate charges next month. What makes this particularly noteworthy (incase you were not bothered) is the fact that the repo rate may go up by 2% in one go.
To put things into perspective. If you bought a house for R500, 000 back in 2006 around July and the bank gave you an interest rate of 10.5% (i.e. the prime lending rate then), and you took the bond over 20years then you would have been paying the bank R4,991.90 per month.
So two years later, Today, you are paying the same bond but alas, the prime lending rate is 15% which means that you are paying R6,583.9. This is a whole R1,592.05 every month extra that you did not foresee. And petrol? food?
But wait for the punch-line! If things go as Tito Mboweni stated while talking to Bloomberg we are going to receive an early Youth day present of 2% hike. This means the repayments for the same bond will now be R7,334.00.
In English, this means in a month and a bit’s time you will be R750 poorer and R2342.1 from when you bought this house two years ago.
Picture by razzlefrazzle
While it does feel great this time of the year. With so much buzz around with everyone running around to get Christmas gifts, finalise holiday preparations or stock up to entertain and feed visitors. I feel we should remember our situation here in South Africa with regards to over indebtedness, overspending, savings (or lack there of) and the fact that we recently had interests go up by another half a percent just last week.
So what I think we should do is first think of our January 2008 commitments before we spend the little we have. Ensure we have enough money to meet those much needed expenses like school fees, groceries, etc. Then let us think about the saving.
Let us look at saving in two ways. (1) Being how much of that bonus you can invest and (2) being actually paying more than you need to for your current debt since you would be saving on interest. This of the second as a future saving or a cash flow management strategy since you may even reduce your monthly payments in some cases.
And worse if you do not have cash try not to give into those “buy now pay later” schemes if you can. Remember a bargain is no bargain if you do not have the money for it, even worse when you won’t be able to meet the repayments next year.
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