Financing Home Loans in 2008

Be ready for a tough year financially...

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Unless you are a high-income earner with little debt, the year ahead could be a tough one as inflation is expected to continue to rise in the short term.

January 12, 2008

By Laura du Preez


If you are struggling to keep your head above water financially now, it's time to implement some corrective measures, because difficult times are likely to continue, with some relief likely only towards the latter half of the year.

If you have incurred a lot of debt, your most immediate danger is keeping up high debt repayments while the cost of living increases.

Set up a budget
The first and most important thing you need to do is to draw up a budget. A budget showing your income and all your expenses will enable you to determine what is happening to your money.

This is a good time to add up all your expenses over the past year and work out on average what you are spending on your home loan or rent, electricity and water, groceries, transport, insurance, clothing, school fees, security, and so on.

You need to ascertain whether you are spending more than you are earning and, if so, to take the necessary steps to ensure that you live within your means.

Prem Govender, the chairperson of the Financial Planning Institute, says you should reduce your debts as much as possible.

You may, for example, need to trade in an expensive vehicle you are still paying for for one that is cheaper both to run and to repay.

Govender says you should put on hold any plans to buy luxuries, especially if you need to borrow funds to finance such items.

If you must incur debt for essential items, she says, make sure you can afford to repay that debt even if interest rates do go up further.

Consolidate you debts
There may also be ways you can reduce your debt repayments by consolidating your debts. For example, if you have a flexible home loan and have repaid some of the loan, you could borrow more from that loan to repay a credit card debt that is attracting a higher rate of interest than your home loan.

The higher home loan should incur less interest than the original home loan and credit card, but if you want to save on the interest you will be charged, you will need to make increased payments into your home loan to settle the additional debt over the same period as you would have repaid the credit card.


Source: http://www.persfin.co.za/index.php?fArticleId=4203435&fSectionId=596&fSetId=300