Money, money, money, must be funny - You know the rest
As someone who is currently looking to become a homeowner I find this behavior form a finance industry disgusting. The deliberate setting up of people into debt by misrepresenting the situation is a worst kind of fraud
Interest-only home loans may come at a cost
You can now delay repaying the capital on your home loan until it matures. While this repayment option has advantages in certain circumstances, you need to weigh these against the potential risks. September 23, 2006
By Charlene Clayton
Paying only the interest on your home loan may alleviate your cash flow problems in the short term, but it may have serious consequences.
SA Home Loans recently launch-ed a feature on its loans that allows you to service only the interest on your home loan - for the full 20 years of your loan term if you wish.
Interest-only loans are risky because the "spend now, pay later" premise of the product could result in many people landing in deep financial trouble, Gavin Opperman, the managing executive of Absa Home Loans, says.
Richard Sparg, a Certified Financial Planner (CFP) and chartered accountant at Cape Town financial planning company Netto Financial Services, says the risks of not paying any capital on your home loan until the end of your loan term are:
You remain in debt for longer.
If interest rates increase, you will be in a worse financial position than if you had been repaying both the interest and capital on your loan. This is because the interest component of a loan decreases over time if you repay both the capital and the interest components every month. But if you are paying only the interest in an environment of increasing interest rates, your interest payments will increase.
You will ultimately have to repay the capital on your home loan, and with the average home loan at about R500 000, forking out this amount in one go can make quite a dent in your finances.
"Few retirees have R500 000 lying around," Ian Beere, another CFP and chartered accountant at Netto Financial Services, says. If you do not have the cash available, you may have to sell assets in order to settle the loan.
Beere adds that paying interest only is never suitable for people who do not live within their means, because it will rob them of net asset growth in the long term.
"Most people get to 65 years and their only assets are their retirement fund savings and their home, which is fully paid," Beere says.
Opperman says homeowners who opt for interest-only loans can't build any equity early in their loans and thus rely on an appreciation in their property's value to help them "own" more of their homes.
This is all very well in a robust market, he says, but when property prices start coming off the boil, homeowners could end up owing more than they own. And if, for whatever reason, the homeowner needs to sell the property while paying the interest only, the homeowner may be responsible for the selling costs, Opperman says.
The rest of the article from Personal Finance website can be found here.
It is bad enough that the property prices have soared at least 20-30% since I last checked them out in January, but this is plain robbery. What is even more amazing is such practices are allowed to continue by our wonderful government.
Interest-only home loans may come at a cost
You can now delay repaying the capital on your home loan until it matures. While this repayment option has advantages in certain circumstances, you need to weigh these against the potential risks. September 23, 2006
By Charlene Clayton
Paying only the interest on your home loan may alleviate your cash flow problems in the short term, but it may have serious consequences.
SA Home Loans recently launch-ed a feature on its loans that allows you to service only the interest on your home loan - for the full 20 years of your loan term if you wish.
Interest-only loans are risky because the "spend now, pay later" premise of the product could result in many people landing in deep financial trouble, Gavin Opperman, the managing executive of Absa Home Loans, says.
Richard Sparg, a Certified Financial Planner (CFP) and chartered accountant at Cape Town financial planning company Netto Financial Services, says the risks of not paying any capital on your home loan until the end of your loan term are:
"Few retirees have R500 000 lying around," Ian Beere, another CFP and chartered accountant at Netto Financial Services, says. If you do not have the cash available, you may have to sell assets in order to settle the loan.
Beere adds that paying interest only is never suitable for people who do not live within their means, because it will rob them of net asset growth in the long term.
"Most people get to 65 years and their only assets are their retirement fund savings and their home, which is fully paid," Beere says.
Opperman says homeowners who opt for interest-only loans can't build any equity early in their loans and thus rely on an appreciation in their property's value to help them "own" more of their homes.
This is all very well in a robust market, he says, but when property prices start coming off the boil, homeowners could end up owing more than they own. And if, for whatever reason, the homeowner needs to sell the property while paying the interest only, the homeowner may be responsible for the selling costs, Opperman says.
The rest of the article from Personal Finance website can be found here.
It is bad enough that the property prices have soared at least 20-30% since I last checked them out in January, but this is plain robbery. What is even more amazing is such practices are allowed to continue by our wonderful government.