Keep the end in sight

Private Property South Africa
Private Property Reporter

Paying off your home loan earlier than expected is a homeowner’s dream. The sooner you finish making your payments, the sooner you’re debt-free. But more to the point, the less interest you accrue in total.

However, as with most things, there’s a safe way to go about this and an unsafe way. Err on the side of being safe by reading on and equipping yourself with the knowledge you need.

How do you pay off your bond sooner?

Firstly, how is early repayment even possible? Well, the obvious way is to pay above and beyond what you need to pay every month. However, just make sure you won’t be liable for early repayment penalty costs if you do so. Some loan application institutions charge a penalty fee if you want to make extra payments.

Another, simpler way is to opt to pay half your loan once every fortnight. What this means is that you effectively make 13 full payments every year, instead of 12. If this doesn’t make sense, remember that there are slightly more than four weeks in a months, so if you pay every fortnight, you “catch up” an extra month in the year.

If you’re still right in the beginning of the process, you can decrease your repayment period by putting down a bigger deposit.

Can you afford to though?

While early bond repayment saves you money, you should only consider it if you are in a strong financial position. There might be other areas your surplus cash should be going to first before you try pay extra into your bond. For instance, everyone should have an emergency cash reserve of at least two or three months’ income. Further, you also need to be putting money away for retirement, and possibly even your child’s college fund.

Once these bases are covered, then you can think about what’s left to go into the home loan.

Do you have other debt?

If you have to pay off other debt, rather first concentrate on getting that out the way. For example, you would pay much higher interest on credit cards than on ooba home loans. The money you lose on credit card interest is far more than the money you’d gain on saving from paying off your bond earlier. Prioritise your debt, by making sure your high-interest debt is out the way. Then turn you attention to your home owner’s debt.

Have you done the math?

Work out how much extra money you would feasibly be able to contribute towards your home loan to pay it off earlier. Use an affordability calculator to work out what you would be saving on interest. Then see if that is more or less than what you would make saving your money elsewhere.

Usually you would save more by paying of your mortgage sooner, but the financial math involved can be more complicated than you think, so it’s worth a double check to see if you’re really saving money.

If you’re financially secure and able to afford extra payments, clear of other debt, won’t suffer early repayment penalties, and have done the math, then you’re good to go. Making that extra effort now will be worth it down the line when you’re debt-free earlier than expected.


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