Paying in a little extra money into your home loan account may be the most obvious way to cut the time it takes to repay it, but the current economic climate might mean you don’t have an extra R500 to throw behind your bond each month.
A good place to start is to get rid of any short-term debt and retail accounts as soon as possible as those monthly instalments, as small as they may be, will help you chip away your bond.
Cutting out unnecessary expenses and vices – like that daily does of caffeine and cigarettes – can also help you save some money to plough back into your bond.
Using the example of a R750 000 home loan at a rate of 10% over 20 years and assuming that the interest rate remains doesn’t increase during the loan term, Steven Barker, head of home loans at Standard Bank, says that upping your bond repayments by R500 per month could slash over three years off your bond term.
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Another way to pay off your bond faster, according to Mike van Alphen, Rawson Finance national manager, is to use your bond as your savings account.
“Most bonds these days have an access or flexibond facility that allows you to withdraw any quantity you have in the bond at any point. That means whatever extra money you’ve put in, above and beyond your minimum payments, is still available to you in an emergency just as it would be in a normal savings account. Only in your bond, it’s saving you thousands of rands worth of interest in the meanwhile,” he says.
An added benefit of using your bond as a savings account is that your money can’t be taxed.
“Money you invest elsewhere is also unlikely to earn more interest than that being charged on your loan which means it’s almost always better to put that money straight into your bond, it’ll save you far more there than it could earn somewhere else.”
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.
“It’s not difficult to pay off your bond in less than 20 years, just remember that little things can make a very big difference,” van Alphen says.
And if you’re still a prospective homeowner, Barker advises that you put down a bigger deposit of over 10% of the value of the property if it’s under R2 million and over 20% if the property is valued at over R2 million.
“This may help you get a lower interest rate and also decreases your monthly repayments, both decreasing the cost of the loan overall [and] freeing up more to contribute to the loan,” says Barker.
“Remember that it is best to ensure that your deposit be made up from savings and not from additional loans, as this would mean that you need to pay off that loan at the same time as you are paying off the home loan, and this will put pressure on your monthly expenses.”