Tito's interest rate shocker
Today's interest rate decision by the Reserve Bank is likely to rip thousands of rands more from your hands each month.
Bank governor Tito Mboweni recently suggested his next interest rate increase could be as much as 2% added to the current 15% prime, but some analysts think the figure is more likely to be 1%.
Whether Mboweni decides on a half-a-percent interest rate increase, as he has become accustomed to doing, or making good on his threat of 2%, the effect on your bank balance is going to be ugly.
On a R500 000 mortgage at the lowest increase, you can expect to pay about R185 extra each month on your home loan, bringing the repayment to about R6 800/month, figures supplied by www.justmoney.co.za show.
If the rate goes up by 1%, your monthly repayment will increase by about R375 and at 2% it will soar by R750/month, bringing the total to about R7 300/month.
The picture, if you enjoy a discount on the prime lending rate looks a little better, but you will still feel financial pain.
Even higher income earners are set to struggle. A repayment on a R1m bond is set to rocket from about R11 720/month (assuming you get a 2% discount on prime) to just over R12 000 at the modest 50 basis point increase - and to about R13 200 at the a 2% increase.
If you are not a favoured customer, and paying at the prime rate, your monthly increase on a R1m mortgage will shift from about R13 200 to anything up to about R14 700.
For R250 000 mortgages, the effect will be less severe in rand terms, but will probably feel just as bad as people with this type of debt are likely to earn less.
The smallest monthly increase on a property loan will be in the region of R90 and the largest about R375 if you are in this category.
Lower income earners are already struggling to pay their bills.
Justmoney.co.za also crunched some numbers for other types of debt. If you are paying off a car over five years and the rate goes up by 2%:
Don't panic, though. If the latest interest rate increase means you can no longer cope financially, there are ways to make things better.
Personal finance tips
Contact your bank manager to see if you can restructure your debt or consolidate it and take longer to repay what you owe. Don't simply stop repaying your debts or you will make it harder for yourself to find help from a financial institution.
The real estate market has taken a battering so you are unlikely to quickly offload a property that you can no longer afford. Consider swapping to another mortgage provider or opting for an interest-only payment plan to help you get through this period of punishingly high interest rates.
You may find it worthwhile in terms of monthly repayments as well as petrol to downgrade to a smaller, cheaper car.
Also investigate shifting your insurance provider, as insurance companies seldom give you a discount for being loyal and your car's insurance premiums should decline along with its value.
And, if ever there was a time to repay your credit card in full - and then cut it up and opt for debit cards or cash when out shopping - it is now.
Credit cards, particularly the "budget" sections, carry hefty interest rates on repayments.
The table below demonstrates how June's expected interest rate increase will change your repayments on home loans, cars and personal loans. Figures courtesy of online money guide, www.justmoney.co.za
12 June 2008 Tito Mboweni, interest rates, reserve bank, property, mortgage, loan, repayment 12 June 2008
Article by: Xolile Bhengu - www.sundaytimes.co.za