Should you pay off your home loan early?

The question of whether or not to pay off your home loan early often arises.

According to Calvin Ndlovu, head of operations at FNB Home Loans, there is no right or wrong answer to the question..

“It all depends on individual circumstances, long-term objectives and how you plan to structure your own or your family’s finances,” explains Ndlovu.

“For instance, if you are approaching retirement and are planning to settle in that particular home, it is advisable to pay it off.”

Some of the advantages include:

  • Early settlement can help you save on interest, allowing you to pursue other ventures.
  • You eliminate the risk of defaulting if you are self-employed or have a temporary job.
  • Provides a safe haven in tough economic conditions, when there is a lot of uncertainty.
  • Having more disposable income at hand can help you put more towards your short-term or retirements savings.

Disadvantages include:

Because a home loan typically offers you the cheapest debt available, you can save a lot of money in interest by paying off other debt first, such as personal loans, credit cards and car finance.

If you are currently renting out the property you can save on tax as interest paid on your bond is tax deductible.

Depending on your goals, diversifying by saving and investing the money elsewhere could be more ideal.

You will no longer have immediate access to debt at a low interest rate which could be used for renovating, emergencies or personal cash flow management.

As a property investor you can use the extra cash to put down a deposit on another property and still have access to funds in your bond.

You will be liable for bond cancellation fees and may be charged additional interest if you fail to notify your bank 90 days in advance that you are planning to close your home loan account.

“Before making this important decision, seek advice from an expert or financial adviser about your personal financial goals to make a choice that best suits your needs,” concludes Ndlovu.