HOME LOAN - Pay a one-off extra R15 000 - Save R135 000

BY BONNY FOURIE bronwyn.fourie@inl.co.za

Every cent counts: there are ways to knock that debt quicker and benefit financially and mentally in the long run

THE BIGGEST debt people carry, and for the longest periods of their lives, is their home loan, and meeting the repayment each month can be stressful.

Carrying the pressure for 20 years may well be something most homeowners need to endure, but if you can pay off your home loan quicker, you should try by all means to do so.

There are many ways to do this and, granted, they might not all be achievable. However, if you can take off even a few months of your repayments, it would make a big difference.

FINANCIAL CALCULATIONS:

PAYING EXTRA EACH MONTH

If you had a home loan of R1.5 million, repayable over a 20-year term:

✦ Your monthly payment would be R16 256.

✦ Your total repayment at the current interest rate would be R3.9m.

If you took the same home loan value over 10 years:

✦ Your monthly repayment would be R21 304.

✦ Your total repayment would be R2.55m.

This means that by paying about R5 000 more a month, you would save just under R1.4m on your home – and have 120 months of not paying a bond.

This means that by paying about R5 000 more a month, you would save just under R1.4m on your home – and have 120 months of not paying a bond.

Obviously though, not everyone can afford to pay this much more every month, but it does not mean that any extra amount you can pay into your

bond will not make a huge difference overall.

If you paid an extra R4 000 each month (R20 256):

✦ You would pay off your home in just over 11 years.

✦ Your total home loan would be R2.68m.

✦ You would save R1.2m.

If you paid an extra R3 000 each month (R19 256):

✦ You would pay off your home in 12.3 years.

✦ Your total home loan would be R2.84m.

✦ You would save R1.05m.

If you paid an extra R2 000 each month (R18 256):

✦ You would pay off your home loan in just under 14 years.

✦ Your total home loan would be R3.05m.

✦ You would save R843 000.

If you paid an extra R1 000 each month (R17 256):

✦ You would pay off your home loan in 16.29 years.

✦ Your total home loan would be R3.37m

✦ You would save R528 000.

If you paid an extra R500 each month (R16 756):

✦ You would pay off your home loan in 16.75 years.

✦ Your total home loan would be R3.59m.

✦ You would save R304 000.

If, however, you could not commit to making regular extra payments, you could still bring down your home loan repayment

term and save money by injecting your bond with one-off payments.

If you made a one-off extra payment of R20 000:

✦ You would pay off your home loan in just under 19 years.

✦ Your total home loan would be R3.7m.

✦ You would save R177 000.

If you made a one-off extra payment of R15 000:

✦ You would pay off your home loan in 19.23 years.

✦ Your total home loan would be R3.75m.

✦ You would save R135 000.

If you made a one-off extra payment of R10 000:

✦ You would pay off your home loan in 19.48 years.

✦ Your total home loan would be R3.8m.

✦ You would save R91 300.

As part of your strategy to pay off your home loan quicker in the current economic climate, Richard Gray, the chief executive of Harcourts South Africa, says it is important that you review your budget and make adjustments for the higher interest rates.

“If necessary, adjustments should be made to prioritise paying off the home loan faster and reducing the amount of interest paid over the life of the loan.”

He also suggests homeowners consider refinancing their home loans to shorter terms or lower interest rates.

“Refinancing your home loan can be a smart move if it helps you save money on interest and pay off your bond faster. It’s important to consult a reputable lender and weigh the pros and cons before making any decisions.”

Gray advises homeowners to make extra payments towards the principal debt whenever possible, such as using a bonus or tax refund to make an additional payment.

“Even making small additional payments on a regular basis can have a significant impact over time.”

Rhys Dyer, the chief executive of ooba Home Loans, says that because a home loan is such a large, long-term financial commitment, it can be “surprisingly easy” to pay it off at least a little early.

“You might get out a year’s worth of payments (or more) simply by throwing a bit extra towards your bond each month.”

He provides a handful of clever tricks to consider implementing, some of which might even allow you to pay off your bond 10 years earlier. Others will shave off a few months or years.

“Either way, any of these options could save you money in the end and help you reach financial freedom faster. If your budget allows, consider using a combination of these approaches to really hit that debt hard.”

1. Find extra cash:

Cash in your emergency savings accounts and deposit the funds into your bond account. This would also give you tax benefits.

Another way of raising extra cash to reduce your bond account is to sell unused furniture/ appliances, such as that old tumble dryer or television set gathering dust in the garage. You could even rent out unused space on your property and deposit the rental income into your bond.

2. Pay extra into your bond

Consistently adding just R1 000 to your monthly bond payment could make a big difference, Dyer says.

“The biggest problem with this approach, though, is that it requires willpower. To reap the benefits, you have to voluntarily put an extra R1 000 towards your bond payment every month.”

3. Apply salary raises to your bond

One way to find extra cash to put toward your home loan is to deposit money you get from salary increases and bonuses. The goal is to put the same percentage of your income toward your bond, even when your pay goes up.

“In other words, if you’re currently putting 15% of your income towards your bond payment, 15% of each annual raise amount should also go towards your bond, in addition to what you’re already paying. If you’re leading a comfortable lifestyle and can avoid lifestyle inflation that often follows a raise, you could put your entire raise amount towards your bond balance.”

The strategy works best for those who get regular raises above minor cost-of-living adjustments, he says.

“But, if you aren’t expecting to see your income increase anytime soon, this strategy might not be the best option to start with.”

4. Use cash windfalls to pay lump sums

Instead of paying a little extra each month, you could pay a large lump sum here and there. This could be done with a cash windfall, such as from an annual tax refund, 13th cheque or bonus, or inheritance.

“If you put R30 000 towards your home loan when you get your tax refund, all of your payments from there on out are a little more effective, because less of them are going towards interest.”