Interest rates can have an impact on a wide range of areas including home loans, borrowing, pensions and savings. The South African Reserve Bank (Sarb) sets the bank rate (or ‘base rate) this influences the cost of borrowing or the rate of interest charged when financial institutions, such as banks, lend money.

When you hear on the news that interest rates have gone up, it means the MPC has decided to increase the base rate.

What happens when interest rates rise?

Banks are obliged to follow the South African Reserve Bank (Sarb) interest rate decisions, this influences the cost of borrowing, or how much interest you earn on savings.

Impact of interest rates rise on mortgages

When, and if, your bond repayments are affected by an interest rate change will depend on what type of mortgage you have and when your current deal ends.

On a standard variable rate mortgage, you will probably see an increase in your rate in line with any interest rate rise. How much is decided by your lender, so this isn’t guaranteed. If you are unsure, check your mortgage terms and conditions in your original mortgage offer document.

People with fixed rate mortgages are likely to be affected once they reach the end of their current deal. An interest rate rise could make re-mortgaging more expensive.

Have a financial plan in place

It’s a good idea to have a financial plan in place to deal with any potential interest rate changes. Current forecasts indicate that changes are likely to be small, but steady, so while a 0.50% rate rise might not set alarm bells ringing, several consecutive raises could have a significant impact.

Seven tips for managing an interest rate rise on your mortgage

1. Find out what mortgage you’re on

How you’ll be affected by an interest rate rise depends on what mortgage you’re on and when your deal comes to an end. If you don’t know, check your paperwork or with your mortgage provider to find out. Read our guide for more help understanding the different types of mortgages

2. Work out how an interest rate rise will affect you

Now you know what kind of home loan you’re on, you’re in a better position to find out how this will affect your finances and when you’re likely to see this change.

3. Work out what you can afford

If your mortgage repayments are likely to go up, work out if you can afford the increase. Create a budget and see if there are any areas you might be able to cut back. If the increases are likely to be in the future, then start building up a savings buffer so you’ll be able to afford your mortgage when they hit.

4. If you’re worried about how to afford this

You don’t have to be in debt to seek help. A debt adviser can help you budget and assess your income/expenditure early before you get into any financial difficulty. Use our debt advice locator tool to find free debt advice.

5. Build up your credit score

It might seem like a strange time to be focusing on this, but by working to improve your credit score, you will be able to get a better deal when your deal comes to an end or you re-mortgage.

6. Make sure you’re on the best deal

If your current deal is coming to an end, you should definitely be looking at switching to make sure you’re on the best rate. But it can also be worth looking if you’ve got some time left on your current deal. You might have to pay some fees, but if the savings are worth it, you should still switch. For more information on comparing mortgage deals contact a MultiNET Home Loan consultant.

7. Overpay your mortgage

It might be a little while before an interest rate rise hits you in the pocket, so take advantage of the low rate you’re currently enjoying and pay extra. There are limits on how much you can overpay and there might also be charges, so you should check with your mortgage provider first.