An adjustable rate mortgage can work best whenever the prevailing interest rates are too high. If you’re making mortgage payments with returns from investment assets and these returns reflect prevailing market interest rates, an adjustable rate mortgage agreement may be just the thing for you. But since they reflect prevailing market interest rates, your mortgage payments could become unpredictable, and you could find yourself hard-put to manage your expenses.

Depending on the terms of your adjustable rate mortgage agreement, your interest rate could vary every year, or even every month. Some investors have had to sell their investment properties because they were caught by surprise by skyrocketing payments resulting from drastic interest rate hikes. Perhaps they should have considered a fixed rate loan agreement.

What is a fixed rate loan agreement? These are the more traditional loan agreements that have been around for decades. A fixed rate mortgage agreement locks the interest rate at a certain level for the entirety of the loan period. In bad economic times when interest rates go through the floor, fixed rate mortgages are just the thing, because you can enjoy low monthly payments year after year. Also, a fixed rate mortgage may be ideal depending on the duration of your loan agreement. If, for instance, you have a fifteen-year loan agreement, you’ll be able to get away with making fewer interest payments, and you’ll be free of having to pay your lender that much faster.

The downside, however, is that the shorter the loan period, the higher your monthly payments will be. Therefore, it is best to make sure that you have enough money to keep up with your payments. You’ll have no problem if, say, the combination of rent from your tenants and your salary is sufficient for these purposes – even in periods where your property is vacant.

Now, what if current interest rates are too high, and you find yourself wanting a stable way to finance your investment properties? Simply find a lender who’s willing to offer you a convertible mortgage loan agreement. These are agreements wherein the interest rates will vary for a few years, but which will allow you the opportunity to convert them to a fixed loan agreement after the expiration of a certain time period.

Suretyship (Standing in as guarantor/surity)! (EDS)

When sighning surity you are personally laible! When applying for a home loan with the bank, and your income and asset value does not cover the required loan you are applying for, the bank may ask you to get someone to stand as guarantor (suritor) for your loan, meaning that if you do not pay your debt, the surety becomes personally liable to pay your monthly installment to the bank .

Limited Suretyship and Unlimited Suretyship:

There are two types of suretyship which will define how much of the debt will be guaranteed by the surety. Limited suretyship has a maximum rand value and an unlimited suretyship has no maximum rand value. If you are the person signing surety for someone else, make sure that you read the agreement carefully and that you are prepared to pay the debt if this person does not.

Useful hints to look at before signing surety:

• Understand the implications for standing surety for someone’s debt;
• Know how much of the debt you are liable to pay either limited or unlimited;
• Limit your suretyship to a specific amount.

Security in the form of a policy will also be considered by the creditor if the current value on the policy is acceptable in terms of the loan amount one is requesting.

It is advisable to been informed of the financial position of the person you signed surety for. If their financial position has change for the better you can ask the bank to remove you as the guarantor/suretor.

MANY people are ignorant about estate planning, and therefore slip up in some vital areas. Here are some of the most common mistakes made, and some steps to avoid them.

Failing to make a will:

Many neglect this fundamental necessity because they don’t want to think about the inevitability of death; this selfishly ignores the interests of the living who will (or should) inherit.

Others can’t be bothered because they don’t think they will leave much of value; yet many have “hidden” assets such as pension rights. Everyone should have a will, even if it leaves all to a spouse or child. It costs nothing if you go to a bank or trust company.

Failing to realise the limitations of a will:

Contrary to popular belief, you cannot always use a will to dispose of all your property. For example, your spouse or even an ex-spouse may have rights to part of it, depending on how you are married, the terms of a divorce, and so on.

A will is not an appropriate document to guide administrators of any trust you create, as to how they should manage its capital and distribute its benefits. A letter of wishes – which, unlike a will, is not a public document – is more suitable.

Leaving everything to your spouse to save taxes:

What you leave your married partner is fully exempt from estate duty; but it will be taxed fully on his or her death, if the estate is valued at more than the exemption limit (currently R1-million).

It makes more sense to bequeath your first million, which will enjoy the basic exemption, to others, such as children, preferably through a trust, and the balance to her or him. That way the family enjoys a double exemption.

Believing life insurance is enough:

Your chances of becoming disabled before reaching the age of 65 are much greater than those of dying. Make sure your policy incorporates disability cover. Investigate income protection insurance, the only kind where the premiums are tax-deductible from non-business income.

Not keeping your will up to date:

Estate planning doesn’t end the moment you sign your will. Your financial situation will almost certainly change and tax laws may change. Births, marriages or deaths may alter the dispositions you wish to make.

Should you marry or get divorced, or have a child, that will certainly require some radical changes. So review your will at least once every three years, and whenever there’s a substantial change in your finances or family situation.

Changing your will by codicil:

Since each amendment to a will must be executed with the same formalities as the will itself – witnesses, signatures and so on – it doubles the chances of a mistake or misinterpretation. It’s much better instead to have a new will drawn up, based on your old one. Costs, if any, should be minimal.

Failing to plan to shelter life insurance proceeds:

Even if you don’t have significant assets, a big life policy payout could magnify the size of your estate to the point where it becomes subject to substantial estate duty. Some people don’t realise that in most cases life insurance proceeds are added to an estate for tax purposes.

If the amounts could be more than R2-million, it may pay to establish an inter vivos trust and transfer ownership of the policy to the trust. The trust can provide your spouse with an income for life and support minor children and other dependants. The capital can then (under existing law) pass to your heirs free of tax when such income is no longer required.

Not asking yourself “what if” when planning your estate:

Posing hypothetical questions can help you make estate plans that will deal with even the most unlikely scenarios. For example, supposing you’ve set up a trust for your grandchildren’s benefit, naming their father (who is your son-in-law) as a trustee. What happens if the marriage falls apart? It should be a condition for setting up the trust he can no longer serve as a trustee if separated or divorced from your daughter.

Keeping your will at home:

As with other important documents, wills can be lost, stolen, damaged or destroyed. Leave the original with a lawyer, bank or trust company. If you would like a record easily accessible, just keep a copy at home.