Building your own home can be costly

I f you’ve been saving up a decent sum of money with the intention of using that money to build your own home, make sure you have enough capital saved up before commencing with the building. If your credit rating isn’t very good or you would prefer to avoid the 20-year dependence on a home loan and the interest charged by the banks, saving up may be the answer, but once again – make sure it’s enough: this is to say that the cash needed to build a house is a substantial amount, and that your can’t expect to have money left over for luxuries, pet supplies and those little expenses we all like to spend on.

Running out of time

What often happens with people who choose to self-fund the building of their own homes is that they severely underestimate the amount of money it’s going to cost and the amount of time it’s going to take. Even if you have the right amount of money, if something goes wrong with your contractor or the builders you’ve selected, the process of finding adequate alternative dispute resolution can consume a lot of the time you may have allocated for building your new home. In that instance, money would have to be spent on your existing accommodations or rental, and potential legal or dispute resolution fees.

Running out of money

If you end up underestimating the amount of money it should have taken to build your own home, you have one of two options – either take the time to save up more money, or opt to take out a bank loan or a personal loan. Taking out an expensive personal loan can be very risky, especially because of high interest, and needs to very carefully be weighed up as a viable option. A R120 000 personal loan paid back over five years will end up costing you more than double the loan amount.

Loan repayment vs Investment options

If you are forced to take out a high-end loan, you may be wondering whether it’s worthwhile to try and pay it off sooner, or whether you should invest any money you have left over at month-end instead. According to the New Credit Act, you will not be penalised for paying off a loan sooner than the allotted number of months – you may actually be rewarded with a good credit standing. In terms of investing any extra money versus paying off debt, it just depends on what interest you’re being charged. Personal loans and credit cards are usually charged a very high interest rate, anywhere between 14% and 22%. If you had to invest that money, you would be lucky to make 10% interest on your capital investment, so according to this example, it would be far better to pay off your debt quicker.

To ensure that you are not forced to go into debt because of a lack of planning, if you decide to build your new home out of your own pocket, a good rule of thumb would be to multiply your estimation by two and add another 10% for unforeseen costs. If you do need to take out a loan or go into debt to cover costs, be wise about which finance vehicles you decide to use and consult with a financial advisor on your best course of action.

Step-by-step guide to building a home

When it comes to building a home, there are different methods used by contractors all over the world, based on […]

Why people are so interested in investment banking

If you’re looking for possible jobs in finance, you’re bound to have seen the appeal of working in investment banking. […]

South Africa still the world’s best place for mining operations

South Africa has a long and rich history of mining. In fact, the nation has been built around the industry, […]

When are you too old to get an MBA?

Those in finance and business, such as those with financial manager jobs, would probably be interested in obtaining their MBA […]

Predicting stock markets through art

Predicting stock markets through art During May 2013, art auctioneers in London and other auction houses around the world were somewhat […]

How house prices in different areas affect each other

You may not believe it, but property prices in different areas can have a considerable impact on one another: indeed, […]