Hit by a bank interest rate increase this week? You can do something about it. There are many different borrowing options on the market, but you have to do your research and negotiate.
However, financial advisers warned this week that the best thing you can do is reduce your home loan. Even if you can't afford to pay off your debt, you can save thousands of rands in interest by paying in a little extra every month.
If reducing your debt is not an option and you have been slapped by Absa Bank and NBS/Boland with a two percentage point increase on your debt, there are alternatives available.
Financial advisers said this week the alternatives include:
* If you are in the market for a new loan, shop around at all the banks for the best rate. You should never accept the first interest rate the bank offers you on a loan, you should negotiate with your bank manager;
* If you already have a loan, you could consider switching it to another bank after negotiating a better deal. This is straightforward if you have an overdraft. It is unlikely that you will be incur costs. Switching a home loan is a little more tricky. The lower the value of your loan, the less likely this is to be an option as there are costs involved.
On a R100 000 home loan the costs of moving it to another bank would be as much as R2 343. If you stayed with the same bank a two percentage point interest rate increase on a R100000 home loan over 20 years would cost you about R1 800 more a year.
But some of the costs of switching are negotiable. On a R200000 loan, the amount you would pay in costs to move the home loan would be about R2 813, which is less than the R3 600 you would have to pay each year in additional interest if you stayed with the same bank. Do not switch because one bank has increased all rates across the board by two percentage points because the other banks are likely to follow in days;
* Another option is to take a fixed interest home loan, but you need to do this before the interest rates at your bank are increased. You also need to have a view on whether interest rates will stay high or come down again. You will be locked into a fixed rate for one to two years; and
* Be aware that interest rates can vary from one kind of loan to another. About the most expensive money you can get is on a credit card and the cheapest is on a home loan.