Paying off your home loan early

Paying off your bond as quickly as possible is one of the best financial decisions you can make. You’ll save yourself thousands of Rands simply by paying more into your bond each month.

There is a misconception that you must take the entire period of the loan to pay off your bond. That in incorrect. You are entitled to settle your home loan in whatever period you choose provided it is paid up before the term of the loan comes to an end.

Buying a house is one of the biggest and most important financial decisions of your life.We look at some of the advantages of paying your bond off as quickly as possible.

Save on interest

If you have surplus income each month and aren’t sure what savings vehicle you should use, paying that additional money into your bond will save you thousands of rands on interest.

Consider this example. You could pay off a R400 000 house in 20 years and pay about R500 000 toward interest, more than doubling the house’s cost. Or you could pay it off within five years and pay just R100 000 in interest.

That is a saving of R400 000 and 15 years, enough time and money to buy another house which you could then use to earn rental income.

Save on time

As mentioned above, by choosing to up your bond payments you’ll be decreasing the amount of time you have to pay your bond. Instead of just paying the minimum amount owed each month, you’ll begin paying off future months costs and save yourself that time.

Use a bond repayment calculator to start playing around with the numbers. As you increase the monthly payment made, you will see the total bond term reduced and the total bond amount reduced. If that doesn’t convince you to make those additional payments, nothing will.

Low on risk

Anecdotal evidence suggests having a paid off house lowers stress levels and makes you sleep more soundly at night. Owing the bank thousands of Rands is stressful. Just imagine having that pressure taken off your shoulders.

Paying additional money into your bond is very low on risk. You know the asset is appreciating and will not crash like the stock market might.

What the experts say

Finance journalist Maya Fisher-French advocates paying off a house as quickly as possible by paying additional money into the bond. She says: “It is the banks that score when you pay off over a longer period.”

Neesa Moodley-Isaacs, also a financial journalist, says: “Your home loan is the single biggest debt you will ever take on, which is why you should do your best to pay as little interest as possible on it.”

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