Does the thought of twenty or thirty years of home loan repayments put you off buying a home? Even your dream home can start to look less dreamy when you’re faced with what looks like a life sentence of hefty monthly repayments. But what if there was a way to reduce this period … and reduce the total amount?
Buying a home is one the biggest financial investments most of us will make, yet how many of us are aware that small additional payments on your home loan can have a major impact on the final amount you will end up paying for your home? The biggest burden facing homeowners with a bond is the interest they will pay over a 20 or 30 year period.
Say you take a R1 million home loan over 20 years, no deposit and at the current prime lending rate of 9.5%; you will end up paying R2 237 115 for your home. That’s enough to give anyone grey hair! But, before you lose heart, there are a number of steps you can take to pay your bond off faster … and significantly reduce that final figure!
Take a look at these 5 clever ways to bring down your home loan repayments:
Pay your salary into your Bond
I know it might sound strange, but as long as you have an access account enabled on your bond you can actually pay your salary into your home loan every month and then simply transfer out money needed for debit orders and day to day spending when you need it.
Here are the advantages of doing this:
– Benefit from lower interest rates applicable to the outstanding amount on your home loan
– Inadvertently use your home loan account as a savings account and pay off your home loan faster
Make Additional Payments
Fast track the repayment of your home loan by putting any surplus cash, like your bonus cheque or SARS refund, you have into your bond. Yes, this does require discipline and a measure of sacrifice but the long-term gain on your home loan is well worth it. Take for example, an additional R1200 paid towards your R1 million home loan every month, over and above the monthly instalment (R9 321 in this case) owed, and you’re looking at saving R374 344 in interest … and cutting your repayment period down to 14.75 years.
Put Down a Deposit
If you are still in the planning phase of purchasing a home, consider putting down a deposit rather than taking a 100% bond. The bigger the deposit you’re able to put down, the smaller your home loan and the less interest you will pay. On a R1 million home, a deposit of R120 000 will reduce the interest you owe on the outstanding capital to R1 088 661. That is a straight up saving of R268 454 before you’ve even considered taking any of the additional actions discussed above. Calculate how much a deposit can save you, by viewing our Bond Repayment Calculator.
Ignore Rate Fluctuations
While you have no choice but to make increased monthly instalments should the prime lending rate increase, heaven forbid, it is a wise choice to keep your instalments steady in the event the rate decreases as this gives you an automatic gain on your bond. You’re already committed to paying a certain instalment so sticking to this amount should the rate drop gives you an added advantage in paying off your home loan that much faster.
Explore Your Home Loan Options
It doesn’t hurt to explore your options in order to secure an even better rate on your bond. Talk to a bond originator like Homeloan Junction. If you have a good repayment track record and credit history, who knows, they may just be able to negotiate a reduced interest rate. Even a 0.5% reduction can represent a significant saving; that is R77 773 saved on a R1 million bond over 20 years with no deposit down. Should you decide to switch home loan providers, be sure that the cancellation and penalty fees you’ll inevitably be charged will not outweigh your prospective savings.
As you can see, a little commitment and discipline can go a long way to alleviating the burden of your bond. And at the end of the day, paying off your bond faster and reducing the amount of interest you owe on your home loan translates to money in your pocket. This can be used towards your retirement, your children’s university fees, a world cruise or perhaps an investment property.
Yours in Property