The process of buying a home, especially a first home, is exciting and scary at the same time. South Africans can get caught up in the hype of affordable residential home loans based solely on the monthly payment. When you only factor in the monthly outlay and mentally dismiss the total cost of a home, you do yourself a disservice.
The good news is that disclosure laws are in place to protect you and you have your estate agent available for guidance. Best of all, when you secure a home loan through Homeloan Junction, you get the best possible deal.
- Our experts guide clients through the application process, explaining everything as you go along.
- Homeloan Junction submits applications to 9 different banks. You just have to choose which deal suits you best.
- We are experienced in negotiating with the banks on your behalf to get the best rates.
- You are relieved of replicating all the paperwork.
- You will know the monthly payment and you will also know the total cost over 20 or 30 years at various interest rates, so you can choose wisely.
By the time you actually sign the final paperwork your mind may be in a whirl. You just want to get through the signing, get the key and go home. You need time to let the meaning of it all settle in.
It’s time to take another look
When all is said and done, your residential home loan is an investment. Life gets busy and paperwork gets buried. Still, you need to periodically review your loan terms. You need to track what kind of return you are getting on this investment and improve that return if possible. You also need to know if your investment has turned into a liability. Listed are a few markers to check:
- Do the maths and find out how much you have paid to date toward interest and how much to principal? You may be surprised. If you need one, your lender will provide an amortisation schedule so you can track these amounts by month.
- Get a list of all similar properties that have sold in the last 90 days. Your estate agent can help with that. This will give you an idea of what the market value of your home is today.
– Hopefully it is worth more than your total home loan balance so you are making money. If you sold now, you would realise some profit.
– A drop in value is cause for concern because your investment has turned into a liability. You would lose money if you sold now.
– If there is no movement up or down, you are safe for now. You are not making money but you are not losing either. If you had to sell you could expect to break even.
- Subtract your home loan principal balance from the total loan balance. That number could be another surprise but that is what it is costing you to borrow the money to buy the house.
- If property values do not increase over the term of your loan, your profit will be absorbed by loan fees. Shorten the loan term to save your profits.
- Since interest is figured on a daily loan balance, the faster you lower the balance the shorter the loan term. Shorten the term by paying more toward principal each month.
Shorten the term of residential home loans
There are several ways to shorten the term of your home loan so you pay less for your home. Any amount you pay above your monthly payment goes directly onto your principal.
- If you pay off another loan, like credit cards, student loans or vehicle financing, divert that money toward your home loan every month. You will cut your loan term by years. That is a lot of interest you will not be paying!
- Make home loan repayment a top priority. Know exactly how much you are paying for your house if you do not make extra payments. Then, commit an additional, firm amount each month. Do the maths to find out how much you will be saving on the purchase price of your house. The numbers could be big.
The simple truth is any extra money South Africans put toward the principal payment shortens the loan term and saves money on interest. People are always tempted to use extra money for nonessentials. That is why you have to make a loan payoff plan and stick to it. Rather than wasting the money, plan what you can do with the significant savings. You’ll be amazed by how much you can save if you pay your residential home loan five or ten years sooner than scheduled.