Struggling to meet your debt commitments, including your mortgage bond loan? If you are, you are not alone.
According to the latest Reserve Bank quarterly report South Africans, on average, are now paying about 12 percent of their after-tax income to reduce debt - this is up from slightly under nine percent two years ago.
Most of this has been brought about by higher interest rates.
The reduction in interest rates on mortgage bonds has come as a welcome reprieve for many people, but many are still struggling.
Amalgamated Banks of SA (Absa) says apart from higher interest rates, individuals are also being affected by other factors such as relatively lower salary increases and "fiscal drag".
Fiscal drag is caused by inflation-linked salary increases that push you into higher tax brackets without giving you any real benefit. These additional factors create a classic vicious circle: People borrow more because they have less money, which again in turn pushes up interest rates as the overall demand for borrowed money increases.
More and more, individuals are seeking to increase the term - or repayment period - of their debt to reduce the monthly repayments, particularly on mortgage bonds, which have the lowest interest rates.
An Absa spokesperson says this brings relief on monthly payments on a bond, but it comes with a penalty: it makes your house more expensive in the long term.
For example, if your original bond was R100 000 repayable over 20 years with an interest rate of 19,25 percent, your monthly repayment would be R1 640. If you had reached the stage where you only had five years left to go to pay off your bond in full, the total amount outstanding would be, including interest, R98 409.
In today's values that would be worth about R77 194 if you took into account a 10 percent inflation rate over the remaining period. The spokesperson says you should rather compare today's value because it would give you a better idea of the debt in relation to what you are earning now.
If you wanted to extend your repayment period for five years to 10 years your monthly payment would decrease from R1 640 to R1 172, but the total amount repayable would increase, in today's money value terms, from R77 194 to R91 848. This would mean in today's values you would have to repay an additional R14 654.
In considering the best option weigh up the monthly cash-flow savings of R486,10 against the additional R14 654 interest - in present value terms - that would be payable.
Whatever you decide, remember that mortgage loans are normally a cheaper form of credit than cheque account overdrafts, personal loans, hire purchase or credit cards.
THE COST OF EXTENDING YOUR MORTGAGE LOAN
Original Mortgage Loan Details
Loan amountR50000R100000R150000R200000
Term (years)20202020
Interest rate19,2519,2519,2519,25
Monthly PaymentR820R1640R2460R3280
Amount to be paid when extending the bond by five years
Years outstanding5555
Monthly paymentR820R1640R2460R3280
Total amount:
At nominal valueR49205R98409R147614R196818
At present valueR38597R77194R115792R154389
Amount to be paid when extending the bond by five years
Years outstanding10101010
Monthly paymentR586R1172R1759R2345
Total amount:
At nominal valueR70347R140694R211042R281389
At present valueR45924R91848R137 773R183 697
Amounts payable when extending the bond life by five years
Monthly reductionR234R468R702R935
Total additional amount on bond
At nominal valueR21143R42285R63428R84571
At present valueR7327R14654R21981R29308
Note: Nominal value is the amount you will actually pay in rands. Present value is the amount your rands would be worth today after taking account of the Inflation rate instead of a rand with a lower value in years to come. The calculations in the table are based on an assumed inflation rate of 10 percent. Source: ABSA BANK