3 Tips To Reduce The Amount – And The Term – Of Your Home Loan.

A house is probably the most expensive asset that most people will invest in. However, because very, very few South Africans can afford to buy a house cash, the repayments are structured into affordable, monthly payments over a term of about 20 years.

But while most home buyers factor these monthly repayments into their budgets, they don’t always look at the value of the home loan over the full term of the repayment period. Because of the interest rate, and the term of the loan, you can end up paying back more than double what the house was sold to you for. In fact, most financial institutions structure the repayment in such a way that the first few years of your bond are spent paying for just the interest owed, and not the loan itself.

Using the BetterBond mortgage calculator shows that a house for R600 000, bought with a 100% bond, paid off at R5,206.00 every month over a 20-year period will actually result in a total repayment amount of 1,249,665. That’s more than double the amount the house was sold to you for!

However, there are ways that you can reduce the term of your home loan and the total you pay on the loan. Remember, a little preparation can go a long way when it comes to making massive investments like buying a house.

Find a lower interest rate

It almost goes without saying that the cause for the inflated total amount at the end of your loan term is directly related to the interest rate. It pays to shop around for the lowest possible interest rate on your home loan. This is something you can rely on a bond originator to help you with.

See our post on What a Difference a Rate Makes to see how your interest rate affects your repayments:

Save up for the deposit  

Buying a house is a decision that you’re unlikely to make on a whim, which is why you should use your pre-planning period to your advantage by saving up for as much of a deposit as you can afford to. If you can put down as little as R20 000 upfront, you can reduce the monthly repayments on your loan to just R5,033.37 and the overall loan amount to 1,208,009.

It’s clear to see that the more you can afford up front, the less you’ll have to budget for in the long run.

See our post on Saving Money on Household expenses for some ideas on how to accumulate a decent deposit:

Put in the extra every month

It sounds counter intuitive, but when it comes to paying off your home loan, paying more means saving more. Try to pay as much as you can afford to every month into your bond, this means you’ll pay your loan off faster, and ultimately pay less for the overall loan amount. Even as little as an extra R200 a month can make all the difference.

If you find yourself at the receiving end of an unexpected financial windfall, like a tax rebate or a performance bonus from work, you should also consider paying this into your bond as a kind of ‘belated deposit’. It means that you won’t be able to enjoy that money in the short term, but the value of your debt will substantially be reduced in the long term.

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About BetterLife Home Loans

Since 2003 BetterLife Home Loans has been SA’s No.1 Bond Originator, handling the entire home loan application process on your behalf – free of charge! Our aim is still to source the best interest rate for you by submitting your home loan application to all the major banks. There is no easier way to apply for a Bond or Home Loan in South Africa!

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