Once you have secured your bond, you may be tempted to forget about it and simply let the monthly payments tick over for the next 20 to 30 years.
However, with just a small amount of forward planning, you could pay off your bond much faster. This could save you hundreds of thousands of rand, which could be put towards your children's education or creating wealth for you and your family.
How to pay off faster
Higher repayments
Arrange to pay your bond off at 2 to 3% more than the minimum monthly repayments. This slight adjustment will save you money and years.
If the interest rate drops, keep your repayment at the same level. If the interest rate increases, you won’t have to find the extra funds to repay the loan. If possible, increase the payment amount to keep it above the minimum.
Frequent payments
Instead of making one big monthly instalment, split your payment into two and pay every fortnight. By doing this, you will effectively be making 13 monthly payments every year instead of 12. This will shave 54 months off your loan without you realising it.
Because the interest on home loans is calculated daily, paying earlier in the month will also save interest on payments for those days.
Lump sums
Any lump sum payments you can make will cut years off your bond. Instead of spending your annual bonus or other additional funds on unnecessary items, you should pay most of it straight into your bond account.
In the early years of a mortgage, you will almost certainly only pay off the interest while the principal amount is unchanged. Every rand you pay over and above your minimum repayment will reduce the capital amount you owe.
Consolidate your debt
If you consolidate all your debts under your home loan, you will be paying them off at 11.75% - if your bank has granted your bond at the current prime lending rate. This is better than paying off your credit card or personal loan at a rate of 20% or more.
You can then put these savings towards paying off your bond account faster. Be sure not to incur more credit card debt, though.
Savings account
Your access bond account is an excellent savings vehicle. Banks charge a higher interest rate to people borrowing money from them, then pay people saving with them.
By depositing your savings into your bond, you will get the interest rate the bank charges you on your loan as positive interest on the money you invest. This will be much higher than if you deposited it into your savings account.
Stay informed
It’s important to keep updated with what's happening in the property and finance world. Keep an eye out for new opportunities that will help you repay your home loan faster.
For example, the Finance Linked Individual Subsidy Programme (FLISP), a government subsidy available to all South African first-time buyers, is being delinked from approved finance. This has created an opportunity for many more South African citizens to buy their own first property.
In the past, many first-time buyers did not know about the opportunity to apply for a FLISP subsidy, so they missed the chance when buying their homes. However, with the new policy, this may soon change as retrospective applications may be considered as soon as the new guidelines are made available.
Writer: Sarah-Jane Meyer
