You can pay off your home loan in seven years!

No, it’s not about paying huge amounts of money into your home loan every month, it’s about understanding the process, then paying cleverly and consistently...and being disciplined. A paid-off asset – likely to have increased in value too - in seven years!

Credit: www.justonelap.co.za 

You have a 20-year home loan, so your assumption is that, to pay it off in seven years, you’re going to have to make up roughly two thirds of the time by paying an additional two thirds more each month. 

That’s not how compound interest works. 

Paying off your home loan in seven years is far easier than you might think. Yes, you do need to have a little extra cash every month, and if you’re right at your threshold and battling to make that normal minimum repayment, this isn’t going to work for you.

But think about it. If you’ve paid off this home loan in seven years, you have a paid up asset, all of that being equity. Unlike those who’ve only being paying what they were committed to – those early years of home loan repayments are largely only paying off the interest – when you sell after seven years, you will effectively be 85 percent better off than you would have been. 

It takes five main steps.

Step one: From the first instalment of the FIRST YEAR of your 20 year home loan, you pay an extra 10 percent. If your instalment is R10 000 a month, you pay R11 000 a month for a year.  

At the end of that FIRST year – provided you continue with this process as described - you will have reduced your home loan to 15 years. 

Five years saved. 

Step two: Let’s assume your salary goes up by inflation - a 6 percent salary increase. Take the R11 000 you’re paying on your bond, and increase that payment by 6 percent. Note – you don’t pay your 6 percent salary increase into your home loan, you pay 6 percent of your revised bond repayment of R11 000 (R720).

And you do this annually. 

That will take your home loan down to 10 years. You’ll have halved it. 

Step three: Pay your home loan before the 1st, 2nd or 5th of the month. If you get paid on the 25th, pay it then. 

This will bring it down to seven to eight years. 

Step 4: It’s said that each of us should have three to six months’ living expenses tucked away safely for a rainy day. Well, in a perfect world anyway. But if you do have, 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, this way effectively you’re earning that interest rate on that money. 

Step 5: 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.