Paying off your home loan

Paying off your home loan.

If you work with an example of a R1 million home loan, home-owners can expect to pay over R1,3 million in interest over a 20-year period.

Ideally no-one wants to spend that much money on interest alone and that’s why it’s so important to throw any windfall you may receive into your bond, even if it’s just an extra R200.

It will go a long way to reducing your home loan period.

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If you can spare an additional R3565 per month, you could finish paying off your bond in a decade and save over R700 000 in interest while you’re at it.

looked at another way, you would need to add a total of R427 800 to your bond repayments over the first 10 years of your 20-year bond to save R730 350 in interest, which is like getting a 70% return on your investment.

At this point, the property would be fully paid up.

As idyllic as this sounds, the reality is that most South Africans simply don’t have an extra R4 000 at their disposal so a way of getting around this would be to consider a less expensive property in order to reduce your monthly repayment amount.

Botha says that if you buy a property for R750 000 as opposed to R1 million, your bond repayment is already R2 400 cheaper than the R1 million bond and if you wanted to settle your bond in 10 years, you’d only need to pump in an extra R2 700 per month.

Thus buying a cheaper property might well create the necessary budget leeway to pay it off in 10 years and once again save a huge amount of interest, he says.

If the property is then too small, for a growing family for example, it can be sold and all the proceeds used to pay a really substantial deposit on a bigger, more expensive home, which will once again give the owners the opportunity to pay it off faster.

Below are a few more strategies

Rent out unused space

Home-owners in South Africa are increasingly latching onto the Airbnb property rental business and some are earning a pretty penny through the business. If you have a granny flat or garden cottage that is standing empty, think about renting it out. Remember that an extra R1 000 put towards your bond monthly will shave off almost five years on your bond.

Find a secondary source of income

Consumers may generally be feeling the need to supplement their income just to keep up with Vat, petrol and cost of living increases.

“Take extra shifts at work, make and sell something at your local weekend market or look for something, holiday or freelance work to bring in additional income that you can put straight into your bond,” Botha advises.

Make earlier payments

You can also consider making your bond repayments earlier on in the month because interest on your home loan is calculated on a daily basis, meaning that the earlier in the month you make the payment, the less interest you end up accumulating.

Author: Thandi Skade

Source: Destiny Connect

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