Pay extra funds into your bond each month to repay it faster

The recent SA Reserve Bank decision to reduce the repo rate to 6,5% was well received by the majority of stakeholders in the property industry. This means that home buyers and owners benefit from the reduction in prime lending rates, and although the 0,25% seems negligible, it adds up to quite a substantial amount over 20 years.

“We feel that the biggest benefit of the reduction,” says Meyer de Waal, director of MDW Inc, and co-founder of the Attorney Realtor Hub, “is that is has created a more positive sentiment in the property industry, which has filtered through to all stakeholders: estate agents, bond originators, sellers, buyers, and property owners.

“The past 18 months have been slow for property sellers and estate agents. Many attributed this to “a wait and see” on the outcome of the 2019 National General Elections,” says de Waal.

The question is now, however, should I cash in now and pay less on my home loan?

De Waal says, “No, it’s best to continue paying what you were paying, and where possible, pay a little extra on top of that amount – such as at year-end when you get a performance or end of year bonus.”

On a 20 year bond of R600 000 at a payment calculated on 10,25% interest, the monthly repayment was R5 889 a month. At an interest rate of 10% over the same repayment period, the monthly repayment is R5 790 – a saving of R99 a month.

An extra monthly payment of R99 a month, with a remaining repayment period of 15 years of the 20 year home loan (as an example) will reduce the home loan repayment by six months and save the property owner R23 128 in total.

For a mortgage of R1 million, the monthly savings will be R166. On a home loan of R1m, an extra monthly payment of R166 a month, with a remaining repayment period of 15 years of the 20 year home loan will reduce the home loan repayment by six months and save you R38 771 in total.

For new buyers, affordability is one of the key components to raising a home loan and the reduction in the interest rate will mean more buying power for home buyers.

If you earn R20 000 a month, with an interest rate of 10.25% and calculated over a 20 year term, a home buyer may qualify for a home loan of R611 219.

At an interest rate of 10%, the same income ought to raise a home loan of R621 747 – R13 528 more purchase power.

An income of R35 000 a month with a 10,25% interest rate raises a home loan of R1 069 634 and at 10% will raise a loan of R1 088 058, which is R18 424 more.

Call Meyer de Waal on 021 461 0065.