How to reduce the interest on your home loan

If the interest you are paying on your monthly bond payment is eating away at your pocket, have you considered ways to reduce it? 

It may seem like a daunting task, however, it is not impossible. In the piece below Linda Rall, Provincial Sales Manager from ooba, South Africa’s largest bond originator provides helpful tips to guide you.

Top Tip 1: Make your salary work for you

“If your budget allows, after paying for all your deductions and household expenses from your salary and if savings are left over, try to put as much as possible towards paying off your home loan. If you can, you should aim to pay beyond the minimum repayment amount which the bank stipulates,” Rall says.

In addition, says Rall, if you are lucky enough to get a bonus, although the temptation is to spend it, it may give you leverage to negotiate a better interest rate further down the line, if you put in your home loan account.

Top Tip 2: Open an access bond

“Alternatively, you can open an access bond which is one of the smartest ways you can manage your home loan,” says Rall.

This type of home loan allows you to deposit extra funds into your bond and in case of an emergency, allows you to withdraw the funds. You also have the option of having your salary directly deposited to your bond.

“However, it is important to understand that an access bond does not give you the ability to borrow all the money you have paid in – you can only withdraw the funds you have paid over and above the monthly instalment.”

Top Tip 3: Make use of a bond affordability calculator

Rall says that since interest is calculated daily, making use of a bond calculator assists in assessing the amount you need to reduce your total repayment amount.

If your cash flow allows, you should make your bond payments earlier in the month than actually required, as each day of interest saved helps to pay off your loan faster.

Top Tip 4: Negotiate a better a deal

“If you haven’t defaulted on any debt repayments and you’ve been paying your home loan account timeously, you should approach your bank and apply for a better interest rate. Banks are usually open to renegotiating the interest rate with you if you have proven that you are good client,” says Rall.

On the other hand, if you are a first-time home buyer, it will stand you in good stead to have an impeccable credit record. “If you have proven that you are able to manage your debt commitments responsibly, then the bank will consider you to be a good risk. By using the services of an experienced home originator, who negotiates the best deal with the banks on your behalf, you also take the worry out of the negotiation process,” concludes Rall.

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