Pay A Little More Off Your Home Loan And Get Big Rewards
Just because most home loans are approved with a 20-year repayment term does not mean that you have to spend that long paying for your home.
So says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest bond originator, who notes that on a R1m home bought with a 90% loan, buyers could save more than R700 000 in interest by paying off their loan in 10 years instead of 20.
“Over 20 years and at the current prime rate of 10,5%, they would pay around R1,257m in interest, taking the total cost of their home to R2,257m. However, if they paid the same loan off over 10 years, they would pay only R554 000 in interest and thereby substantially lower the total cost of the property.”
The way to do this, he explains, would simply be to pay an additional R3200 a month off the capital portion of the home loan. “What is more, the total of the additional amounts paid over 10 years would only be R384 000 – or just over half of the R700 000 saving in interest – so this would really be a good investment, especially when you consider that at the end of that period you would also own a home that was fully paid for.
“And R3200 a month is not such a large amount – many families are spending that much a month on a second car, for example, and might well consider doing without that or without certain other purchases in order to pay their home off in a shorter time.”
However, says Rademeyer, for those on a really tight budget already, the good news is that there are substantial savings to be made even if you can only pay an additional R300 off your home loan each month. “Just that amount will cut your loan term on a R1m home down to 18 years – and save you R148 000 in interest.
“That represents a whopping 128% return on the additional R64 800 you would be paying into the home loan account, which in investment terms is guaranteed return of significantly more than you could hope to earn at this stage by putting that money in savings or a money market account – or investing it in the stock exchange.”
In addition, he notes, building equity in your home by investing extra capital into your bond will give you a strong financial foundation on which to base your plans for meeting your family’s future needs.
“Meanwhile we strongly recommend that prospective buyers consult with a reputable bond originator like BetterLife Home Loans before committing themselves to a specific home loan option or interest rate. We will not only improve their chances of being approved for a loan by managing and individually motivating their applications, but will also negotiate the most favourable loan terms to help them achieve even further savings on the total cost of their property.”