PAY MORE OFF YOUR HOME LOAN
Category Advice
It's called peace of mind. A good night's sleep. That's what you get when you see the figures decreasing on your home loan statement.
That sense of security is hard to beat.
We've had a few challenging years in KZN in particular, South Africa in general. Globally, inflation's on the rise, and that's made it tough everywhere. The UK's inflation is the highest it's been in 40 years and the United States is not dissimilar. From the impact of the Ukraine/Russia conflict to the USA's inflation-curbing interest rate increase to our own unpleasant inflation rate...we all know the triggers, and we're watching the knock-on effect. We need to stabilise our individual financial situations as best we can, so no matter what arises, we're equipped.
No matter who you talk to, reducing debt is imperative. Particularly any so-called 'expensive' debt such as personal loans or credit cards.
Your home loan may not fall within the expensive debt category, but it's the largest debt you're likely to have. Watching the figures reduce, and seeing the term of your repayment period shrinking is a very good feeling.
Myles Wakefield, CEO of Wakefields Real Estate, is a firm believer in paying more money off your home loan: "I'm not suggesting it's necessarily easy to do, but if you find yourself with a bonus, a salary increase, a windfall, or have paid off another debt (a car?) which frees up some funds, paying off your home loan sooner will save you an astonishing amount of money, and free you up from that debt sooner. You can pay a monthly amount or a lump sum when you receive it - either way, it's going to be a very satisfying difference." He adds, "The key to achieving this is real, real diligence - not being tempted to do unnecessary renovations or head off on a holiday because there's extra money in the home loan account. Focus on the goal - perhaps it's a ten year one - and stick to it. That's when you see and feel the reward."
The current interest rate is 8,25 percent, and it's predicted to rise again at least ,25 but possibly ,50 percentage points. Still low, still manageable, but paying extra on your bond while you can, can cushion the impact of future increases too. As Wakefield says, "It's worth remembering that that interest on your home loan is tax free, so although it's often tempting to explore other investment vehicles, repaying your home loan faster, is a safe, steady and reliable way to bring peace of mind. Particularly valuable if by any chance, your personal circumstances change."
There are a number of ways to pay off your home loan quicker and reduce the term further. Some are small ways, but compounded, add up. Once again, assumptions have to be made about the way your salary is structured, and some or all of these may not be applicable to you. Whether you're a first-time homeowner or are well into paying off your bond term, the same sentiment applies.
The wonderful thing about property is that, over time, it's proven to be a real investment. And if you're living in it, the knowledge that it's yours is a real comfort in a storm.
To find out precisely how much, with your specific bond, you can save, go online to www.ooba.co.za and access their Bond Repayment Calculator. Wakefield has some simple, straightforward suggestions to assist with paying off your home loan sooner.
From the very first instalment of the FIRST YEAR of your 20-year home loan, pay an extra 10 percent. If your instalment is R10 000 a month, pay R11 000 a month for the duration of the home loan. If interest rates remained the same, you would have reduced your home loan down by 42 months - in essence, saved 3,5 years of paying your home loan.
Let's assume your salary goes up by inflation, let's say a 6 percent salary increase. Increase the amount you're paying on your bond by 6 percent. Note - you don't pay your 6 percent salary increase into your home loan, you only pay 6 percent of your revised bond repayment. And you do this annually.
Pay your home loan before the 1st, 2nd or 5th of the month. If you get paid on the 25th, pay it then.
Each of us should have three to six months' living expenses tucked away for a rainy day. If you do, put it into your home loan. Let's say you have R100 000 worth of savings, don't put it into a 32-day call account or fixed deposit - by doing it this way, you're effectively earning that interest rate on that money.
If you get a 13th cheque, treat it as another month's salary. If you can put the entire cheque into your home loan, wonderful; but if not, pay in the same percentage you've been paying for the preceding 12 months.
You may think it's out of the question to pay more, but if you're determined, you might find those funds in surprising quarters - unused items in the garage or home, or cutting back on certain 'luxury' items. Just get a figure or a date in your mind, and work towards that goal - you'll be surprised what you can achieve - and don't be swayed.
Author: Anne Schauffer
