Save money on your home loan by paying more
In June, homeowners were struck with the relief of a cut from the prime interest rate by 50 base points. Homeowners can now enjoy an interest rate of 8.5%. This means that homeowners can enjoy cheaper monthly payments on their mortgages. However, professionals in the real estate and financial markets are encouraging people to keep their monthly payments unchanged. In this article I will describe how one can actually save money by paying more on your mortgage bond.
Due to the economic climate of South Africa, people will immediately start to think on where they can spend the extra money which they have saved from their monthly mortgages. It is thus never a bad idea to invest the extra rands into your bond. Sometimes a home loan can be a massive financial burden, homeowners should thus make extra effort to reduce the total costs of the loan.
You might think that by paying an extra few hundred on your mortgage won’t be enough to make a difference on a big mortgage loan, in fact it would have a big positive impact on the long run. Say for instance you have a home loan of a R1m, then with the interest rate at 9%, you will have to pay R8 997 over a period of 20 years. No with the reduced interest rate of 8.5%, you only have to pay R8 676, saving you R319 per month.
If you were to invest that R319 into your mortgage every month, then you will be able to save a total of R109 835, and you will be able to finish the loan in 18 years, instead of the 20 years.
In short, the more you put in to your monthly bond payments, the more money you will save, and the shorter the term of the bond will be. The interest rate have never been so low in the last 38 years. We have to enjoy the low interest rate while it lasts. Another reason why I would suggest that you should invest the savings into the bond is because when the interest rate go up again, you won’t suffer a severe financial nock. South Africans should understand that it should be every homeowners goal is to lower the time period of the bond and to save money on the total loan.
Professionals in the real estate trade has said that you should consider the monthly bond payment given by the bank as a minimum that you should pay in. It is thus clear that there are literary thousands of rands to be saved by following the above mentioned advice.