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Sunday, 24 March 2013

Unlocking your Home Equity to settle debt


If you are feeling the crunch of the depressed global economy and trapped in never-ending debt repayments, the idea of getting out of the debt trap with just consolidating your accounts and debt into your home loan may sound too good to be true.
One can actually consolidate, weather the financial storm and cut your monthly debt costs by using equity in your property.

The plan is designed specifically to help you recover from your current negative monthly cash flow to a more positive, stable and affordable position. And in doing so, solve your short term financial problems.
What is equity and how will you benefit?
Equity is the difference between a property’s market value less the outstanding bond amount.

Below is an illustrative example:
Say you've  purchased a property and bonded it for R600 000. Since then you have paid in and and decreased the loan amount to approximately R450 000, whilst the market value has increased to R850 000.

This means you have equity of R400 000 in your property (Market Value R850,000 less Outstanding Bond Amount R450,000 = R400,000 Equity. This equity could be used to consolidate your accounts. Here’s how:

Before consolidation

Loan amount
Interest rate
Instalment
Home loan
R450 000
14.5%
R5 760
Motor finance
R160 000
16.5%
R3 934
*Credit cards
R35 000
22.0%
R3 500
Personal loans
R55 000
22.0%
R1 733
Total
R700 000
R14 927

After consolidation

Loan amount
Interest Rate
Instalment
Home loan
R 700 000
14.5%
R 8 960
Savings
You can save R 5 967 per month!

* The credit card instalment is based on a revolving amount and is calculated at 10% of the outstanding amount.

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