How to slash your home loan term and save thousands

How to slash your home loan term and save thousands

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Paying off your bond sooner will not only save you a lot of money, it will also put you in control of your future financial goals.

It is the little things that count, and finding ways to put in a little extra money into your home loan can reduce your loan term by years

Achieving this takes a proactive approach, discipline and an understanding of the benefits that will ultimately help you increase your wealth.

It is the little things that count, and finding ways to put in a little extra money into your home loan can reduce your loan term by years.

Barker shares tips on how to reduce your home loan period:

1. Get rid of short-term debt

Reduce or completely cut any short-term debt before taking up a home loan.

It’s the small things that add up, for example, not purchasing that daily cup of coffee at R15 over 5 days and over 50 weeks a year, could mean an additional R3 750 freed up to put into your bond.

Similarly, cutting out that R500 a month spend on short-term accounts that are not necessities means an additional R6 000 saving a year.

He says these two simple savings tips could mean around R9 750 extra per year freed up to be paid into your bond, which leads to months shaved off your bond term and hundreds of thousands in interest savings.

2. Pay any extras into your home loan

Barker says paying off your bond sooner will not only save you a lot of money, it will also put you in control of your future financial goals.

Pay your bonus or surplus cash as a result of a salary increase into your home loan.

Being disciplined by not spending this cash on other luxuries can cut years’ worth of interest off the loan term.

4. Don’t reduce your monthly repayments if a rate cut occurs

Rather use this to your advantage by keeping your payments the same as before, which will count as additional payments being made, allowing you to cut the lifetime of the loan.

It is possible to pay off your bond in less than 20 years, just remember that little things can make a very big difference, and a bit of discipline goes a long way.

For example, say you take a loan for R850 000 at an interest rate of 12% per annum over 240 months (20 years).

The assumption is that the interest rate remains at 12% for the entire loan term. Making additional payments to your monthly minimum instalment of just R300, R500 and R1000 can have a significant impact on the term and interest saved as illustrated below:

Barker also offers advice to those looking to buy a home:

1. Check affordability

Before applying for a home loan, you must have a clear idea of what you can afford in terms of monthly bond instalments and expenses.

This will help you determine if you can afford the payments and the costs associated with owning a home, such as water and electricity, rates and taxes, maintenance, insurance or other unforeseeable expenses that can arise.

2. What do you have left?

It is possible to pay off your bond in less than 20 years, just remember that little things can make a very big difference, and a bit of discipline goes a long way

Once you know what your monthly expenses are, check if you will have a couple of hundred rands more to spare.

If the monthly repayments are more than what you have budgeted for, the price of the property is beyond your means.

Look for a home within a lower price range to avoid finding yourself in a position where you don’t have money left after paying your bond or spare money to save.

3. Over-budgeting is the safest route

It is best to always avoid taking a home loan that matches the maximum you have allowed in your budget for repayment.

Having additional cash in your budget means that, should circumstances allow, you could pay a few hundred rands more over and above your minimum monthly instalments, which again translates into paying your bond off over a shorter term, paying less in interest, and affording you more time to save for retirement.

4. Never underestimate the value of a deposit

Saving for a deposit before you actually make a home purchase will not only lessen the loan amount, but will give you practice on the discipline needed to save or pay off this loan amount a lot faster.

Author: Steven Barker - Head of Home Loans at Standard Bank