PAYING MORE OFF YOUR HOME LOAN - THE SMARTEST MOVE

There's not much that gives a homeowner a good night's sleep more than knowing their home loan is under control. But there's one better than that - if you're able to not only pay the amount that's due, but pay more than the minimum instalment, you'll be astonished at the speed with which you can reduce your bond repayment period.

We all know that the increase in the home loan rate is not exclusive to South Africa - on the contrary, it's worldwide, instigated by factors beyond our control. The finest possible way to deal with it, is to get ahead of it.  

Myles Wakefield, CEO of Wakefields Real Estate, is a firm believer in paying more money off your home loan than you're obliged to do: "No, it's not necessarily easy, but paying off your home loan sooner will save you an astonishing amount of money, and free you up from that debt sooner. You can pay a monthly amount or, if you receive one, a lump sum - either way, it's going to be a very satisfying difference."

So, how do we do that, and how much does it take to shorten that home loan period? Wakefield is clear on the mindset needed: "The key is real diligence - analysing your expenditure and not feel tempted to splurge on anything unnecessary. This is a time of belt-tightening, and if you can do that - and get the entire family on board - you'll brighten your future very quickly. The easiest way is to set yourself a timeline, a goal - perhaps ten years - and don't waiver."

Wakefield explained just how much that interest can increase...or decrease: "The current interest rate is 10.5 percent. Realistically, in the grand scheme of things, it's still relatively low and nearing pre-COVID levels - by paying extra now, you can cushion the impact of future increases too. It's worth remembering that that interest on your home loan is tax free, so my advice is to consider that while other investment vehicles might be more exciting, repaying your home loan faster, is a safe, steady and reliable way to bring peace of mind. And that's priceless."

There are a number of ways to pay off your home loan quicker and reduce the term further. While they might seem small, compounded, add up. Whether you're a first-time homeowner or are well into paying off your bond repayment term, the same sentiment applies.

The wonderful thing about property is that, over time, it's proven to be a real investment.  To find out precisely how much you can save - with your specific bond - go online to www.ooba.co.za and access their Bond Repayment Calculator.

Wakefield has some simple, straightforward suggestions to assist with paying off your home loan sooner. Some of these suggestions may not be applicable to you but the principles are sound.

• From the very first instalment of the FIRST YEAR of your 20-year home loan, pay an extra 10 percent. For example, if your instalment is R10 000 a month, pay R11 000 a month for the duration of the home loan. If interest rates remained the same, you would have reduced your home loan down by 42 months - in essence, saved 3,5 years of paying your home loan.

• Let's assume your salary goes up by inflation, let's say a 6 percent salary increase. Increase the amount you're paying on your bond by 6 percent. Note - you don't pay your 6 percent salary increase into your home loan, you only pay 6 percent of your revised bond repayment. And you do this annually. To use the previous example, you would then increase your R11 000 bond repayment amount to R11 660. It takes discipline but worth it.

• For most people the repayment date for a home loan is 1^st of each new month. But if you get paid your salary on the 25^th of the previous month, rather pay it then. This is because the interest on the outstanding amount is calculated daily and you will be able to save on interest accrued by this simple tip.

• Each of us should have three to six months' living expenses tucked away for a rainy day. If you do, put it into your home loan. Let's say you have R100 000 worth of savings, don't put it into a 32-day call account or fixed deposit - by doing it this way, you're effectively earning that interest rate on that money.

• If you get a 13^th cheque or annual bonus, treat it as another month's salary. If you can put the entire cheque into your home loan, wonderful; but if not, pay in the same instalment amount you've been paying for the preceding 12 months. 

You may think it's out of the question to pay more, but if you are determined, you might find those funds in surprising areas - unused items in the garage or home, or cutting back on certain 'luxury' items; not splurging at Christmas. Cut back on unnecessary expenditure. Get the family on board with that goal. And don't be swayed. Decide on a figure or a date in your mind, and tirelessly work towards that goal - you'll be surprised what you can achieve.