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Beyond the purchase price: financial advisers shed light on the hidden costs of homeownership and how to avoid debt

Purchasing a home is one of the most significant financial decisions most people make in their lifetime. This requires careful consideration and planning, especially in today’s economic climate, where interest rates are skyrocketing, and income is not set in stone.

Janine Horn, Financial Planner at Momentum Financial Planning, says the world and South Africa are subject to an aggressive interest rate hike cycle – significantly deterring many would-be property owners from settling down in a home of their own.

The most recent interest rate increase was announced in March, taking the repo rate to 7,75% and the prime lending rate to 11,24%, a shocking 14-year high. “Sadly, these increases will most likely not end soon as we anticipate another interest rate hike this week,” says Janine.

According to her, “When interest rates increase, so does the cost of borrowing for consumers, ultimately making it harder for them to repay debt. These interest rate hikes have a significant impact on household budgets.”

The Q1 2023 Debt Index, compiled by financial services firm DebtBusters, found that South African consumers use debt options such as unsecured credit and personal loans as a lifeline to supplement their monthly income. Additionally, the dire state of consumer finances was reflected in the Momentum-Unisa Consumer Financial Vulnerability Index (CFVI), which registered 49.1 points in Q1 2023, which is worse than Q1 2022, when the CFVI was at 53.4 points.

Janine says given the recent interest rate hikes in South Africa and the dismal state of consumer finances, it is more important than ever to speak to a financial adviser before making a significant financial decision, including purchasing a home.

For Janine, buying a home is not just about the initial purchase price but also the ongoing costs of maintaining and furnishing the house. “A financial adviser can help you create a financial plan that considers these costs. They will help you understand your monthly expenses, including utility bills, taxes, and bond payments. With a financial plan, you can avoid debt and ensure your finances are always in good standing.”

Additionally, she says a financial adviser can help you understand the risks associated with homeownership as well as the various insurance policies available to protect this precious investment. “Advisers will also help you navigate the complexities of insurance policies and make sure you are adequately covered in the event of a disaster. This can never be predicted but should always be prepared for.”

Given the fluctuating state of the economy, she/he says homeowners need to stay ahead of economic movements and understand how they affect their finances in every way. “A financial advisor can keep you informed about economic changes and help you make decisions to protect your financial wellbeing.”

At the end of the day, homeownership often involves a sense of security and stability but also requires substantial financial planning. “Do not underestimate the importance of consulting your financial adviser before making substantial financial decisions. With sound advice and guidance, you can make significant strides on your journey to success,” she concludes.

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