SHAVE YEARS OFF YOUR HOME LOAN

If you're financially able to continue paying your home loan at the 10 percent rate, it's a very smart move to do so. Here's why.

It makes sense that our low interest rates stimulated entry-level sales in the property market. The prime lending rate was 10 percent last year, and it's now 7 percent. It's a 50-year low.

Of course, it's also been a welcome relief for most homeowners with home loans, particularly those significantly affected by the economic maelstrom of the Covid 19 pandemic. Many South Africans have been severely impacted, and a lower bond repayment has given them breathing space.

But not all. You may not have been financially affected. There are sectors which weren't damaged, or indeed, overnight, experienced high demand for a supportive product or service.

If you were one of those in a position to continue paying the same bond rate - 10 percent - before the three rate cuts, did you consider doing just that? Myles Wakefield, CEO of Wakefields Real Estate, took a look at the saving you'd have made...and how much sooner you'd have been bond free. If you didn't do it, you still can. Debt free is a worthy goal. Wakefield unpacks a typical scenario: "On a R1 000 000 loan over 20 years, your repayment (at 10 percent) would have been R9 650,22 - at 7%, it will be R7 752 , 99 . If you kept the repayment at the original figure of R9 650,22, your repayment term will be reduced from 240 months to 159,47 months. You'd basically pay off your loan in 13,29 years, as opposed to 20 years." He added, of course, "That is assuming home loan rates stay this way for the duration."

Over six years bond free. That's a very attractive proposition. If you can afford to continue paying that 10 percent interest rate, do it. It's not just about ridding yourself of those monthly instalments either - you have a paid-up asset, all of that being equity.

If you aren't, or weren't, able to continue paying that 10 percent rate, there are a number of other ways to pay off your home loan quicker and reduce the term further.

Some are small ways, but compounded, they add up.  Once again, assumptions have to be made about the way your salary is structured, and some or all of these may not be applicable to you.

• From the very first instalment of the FIRST YEAR of your 20 year home loan, pay an extra 10 percent. If your instalment is R10 000 a month, pay R11 000 a month for the duration of the home loan. Assuming interest rates remain the same, you would have reduced your home loan down by 42 months - in essence, 3,5 years.
• Let's assume your salary goes up by inflation - 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.
• Pay your home loan before the 1st, 2nd or 5th of the month. If you get paid on the 25th, pay it then.
• 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 13th cheque, 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 percentage you've been paying for the preceding 12 months. 

Working at reducing a bond does take discipline and determination, but to say it's worth it, is a massive understatement. You'll sleep a great deal easier in a home that's really yours.