Bonds that are paid off sooner rather than later will enable one to be in control of their future financial goals.
Head of home loans at Standard Bank Steven Barker said: “Achieving this takes a proactive approach, discipline and an understanding of the benefits that will ultimately help you increase your wealth.
“It is the little things that count, and finding ways to put in a little extra money into your home loan can reduce your loan term by years.”
Here are three of Barker’s tips on how to reduce a home loan period:
1. Reduce or completely cut any short-term debt before taking up a home loan:
“It’s the small things that add up, i.e. not purchasing that daily cup of coffee at R15 over five days and over 50 weeks a year, could mean an additional R3 750 freed up to put into your bond. Similarly, cutting out that R500 a month spend on short-term accounts that are not necessities means an additional R6 000 saving a year.
“These two simple savings tips could mean about R9 750 extra a year freed up to be paid into your bond, which leads to months shaved off your bond term and hundreds of thousands in interest savings,” said Barker.
2. Pay your bonus or surplus cash as a result of a salary increase into your home loan:
“Being disciplined by not spending this cash on other luxuries can cut years’ worth of interest off the loan term,” explained Barker.
3. If a rate cut occurs don’t reduce your monthly repayments:
Rather use this to your advantage by keeping your payments the same as before, which will count as additional payments being made, allowing you to cut the lifetime of the loan.
“It is possible to pay off your bond in less than 20 years. Just remember that little things can make a very big difference, and a bit of discipline goes a long way,” said Barker.
For example, say you take a loan for R850 000 at an interest rate of 12% a year over 240 months (20 years). The assumption is that the interest rate remains at 12% for the entire loan term. Making additional payments to your monthly minimum instalment of just R300, R500 and R1 000 can have a significant impact on the term and interest saved as illustrated below.
|Additional payment||Term reduction months||Term reduction years||Interest saving|
|R300||27 months||2.3 years||R179 140.04|
|R500||41 months||3.4 years||R274 369.29|
|R1 000||68 months||5.7 years||R454 068.55|
– Caxton News Service