Personal-Finance

Juggling finances: From bond costs to loan sharks

2018-11-30 11:54

Plan carefully before you buy a house – remember, there are many hidden expenses such as bond registration fees to consider.

CAN I AFFORD THE HOUSE?

PATRICIA WRITES:

I earn R13 000 a month and I would like to purchase a house for R700 000 and make monthly payments of R7 000. Is this a possibility for me?

CITY PRESS REPLIES:

For a property that costs R700 000, your mortgage repayment would be about R7 000 a month.

The problem is that this would represent more than 50% of your net salary.

A bank would consider that high risk and you would possibly not meet the affordability requirements unless you had no other debt.

Buying property requires planning

1. How much do I qualify for? Speak to your bank about what mortgage it would consider providing based on your income. Most banks have an affordability calculator on their websites where you can enter all your details and get an idea of your affordability.

2. What is my credit score? Refer to the credit bureaus to understand your credit score – if you have missed payments or have too much debt, you should rather focus on improving this score before you try to buy a home.

This will ensure it’s more likely you’ll qualify for a mortgage and possibly reduce your interest rate.

3. Can I afford it? This is different from what a bank will offer you.

Banks do not understand your day-to-day finances as well as you do.

If you are aiming to buy, try living on a homeowner’s budget.

This means you need to include insurance, property taxes, municipal costs and maintenance. Understand how much all of this will cost you each month.

4. Save a deposit: Take the difference between your current expenses and your new, higher cost of homeownership and start saving the difference.

This will teach you to live on a homeowner’s budget and save money for a deposit, which will reduce your mortgage repayments.

5. What are the costs of buying a home? There are many costs involved when buying a home, including bond registration costs and municipal deposits. These all need to be paid for upfront, so your deposit needs to cover these as well.

Don’t rush into homeownership – rather plan and be ready as it is a big financial commitment.

LOAN SHARK DEBT NEVER ENDS

MIKE WRITES:

I borrowed R15 000 from a loan shark. I have paid R6 500 a month from February to October – a total of R65 000.

I have told the loan shark that I have paid enough, but they still want more.

They are in possession of my son’s passport and said they would take my bank card at the end of this month.

What can I do?

CITY PRESS WRITES:

According to the National Credit Act, it is illegal to offer credit unless you are registered with the National Credit Regulator (NCR), and then specific interest rates apply.

It is also illegal to withhold ID documents, passports and bank cards. You need to contact the NCR and register a complaint.

They could conduct a raid on the loan shark. You will be required to give your details to the NCR, but these will be kept confidential.

Unfortunately, loan sharks continue to operate and desperate people continue to borrow from them.

Typically, a loan shark charges 50% interest a month.

How that works in your case:

January: Borrowed R15 000

February: You owe R15 000 plus R7 500 interest = R22 500

You only pay R6 500, so now you owe them R16 000

March: You owe R16 000 plus R8 000 interest (50% of outstanding amount) = R24 000

You only pay R6 500, so now you owe them R17 500

April: You owe R17 500 plus R8 750 interest = R26 250

You only pay R6 500, so now you owe them R19 750

May: You owe R19 750 plus R9 875 =
R29 625

You only pay R6 500, so now you owe them R23 125

In the above example, you have paid R26 000 for a R15 000 loan after four months – and you still owe the loan shark R23 125!

As you can see, your debt will just keep increasing.

If you borrow from a loan shark, there is a good chance you will never pay them enough to settle the debt and they will just keep tapping you for more money.

While this is all illegal, if you do not report them, they will keep coming after you.

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December 9 2018