With current predictions indicating a potential stabilisation and subsequent decrease in interest rates, homeowners are presented with an opportune moment to actively reduce their home loans. Gary Phelps, our Head of Sales, suggests maintaining your current bond instalment even as minimum required payments drop.
This proactive approach can lead to significant long-term interest savings and potentially shorten your home loan repayment term.
"Employing such a strategy could reduce your home loan duration by a noteworthy margin," remarks Phelps.
Key methods as advised by Phelps are:
Consistently Pay Above the Minimum- Current data reflects an average home purchase price in South Africa of R1,426,656. With the prevailing interest rate of 11.75%, a 20-year bond on such a property demands a monthly payment of R15,461.
- While current interest rates may make a 10% rate seem optimistic, Phelps points to the 9.75% rate in August 2022 as a sign of its feasibility. If such rates re-emerge and you retain your R15,461 monthly payment, you'd be surpassing the minimum by R1,693. This action could conclude a 20-year bond in merely 14.71 years, with a savings of almost R981,015.
Expanding this strategy to a 30-year term amplifies the benefits. Maintaining a R14,401 monthly payment could curtail the repayment term to 17.53 years, with savings exceeding R2 million (precisely R2,154,257).
- Value the Impact of One-Time Overpayments
- For buyers who may not consistently pay beyond the minimum, making sporadic or one-time overpayments can also yield notable benefits.
- "Think of these overpayments as similar to a deposit on your home. They're a significant contribution to your loan," Phelps explains. Unexpected financial gains, be it a year-end bonus or inheritance, can be a boon when directed towards your bond. For instance, a single R10,000 overpayment on a 20-year bond priced at R1,426,656 with an 11.75% interest rate can lead to savings of R91,081. The same overpayment, applied to a 30-year bond, results in savings of R292,795.
Additional perks of paying beyond the minimum or making one-off payments include:- Diminishing Interest Costs: Substantial savings can be realised by minimising interest through additional payments.
- Accelerated Equity Growth: Settling your bond faster facilitates rapid equity accumulation in your property. This can usher in financial stability and new investment avenues.
- Refinancing Opportunities: A dwindling loan balance might position you for attractive refinancing options with reduced interest rates, offering even more savings.
Phelps concludes,
"Early bond settlement not only alleviates financial burden but also broadens financial horizons. With a reduced bond liability, there's the freedom to diversify investments, bolster retirement savings, or consider property enhancements." Such savings could even pave the way for investments in rental properties.