When most of us imagine our lives 20 to 30 years from now, we picture grandchildren on swings, big family celebrations, and a verandah where we can peacefully watch the sunset. What we don’t think of are the wrinkles we would’ve accumulated trying to pay off the loan on the house all these memories are to take place in. Follow these tips to save you time, money - and some grey hairs.
1. Secure the best interest rate
You may be one of those people who hates asking for a favour but getting a better interest rate is one of those times it really pays to make the “big ask”. Just think, a 0.5% interest rate reduction on your home loan of R1 million could mean a saving of R85 000 on a 20 year bond. That’s worth an awkward conversation with your bank manager or bond originator.
Contact your bank to negotiate a lower interest rate or, if it still makes financial sense in light of cancellation fees, consider changing to another institution who can give you a better deal.
2. Make your repayments at a higher rate
Sound crazy? Hear us out on this one. Get a loan at the lowest interest rate you can but - and here’s the trick - pay it off at 2-3% higher than this. If the interest rate drops, ask your home loan provider to keep your repayment at the same level, and if the interest rate increases, you won’t feel the financial pinch. This slight adjustment could seriously save you in both money and years.
3. Make more frequent payments
This is such a simple way to save, you may have overlooked it. Here’s the tip: Instead of making one big monthly instalment, split your payment into two and pay every fortnight. By doing this you’ll effectively be making 13 monthly payments every year, instead of 12. This will shave four and a half years off your loan, without you even realising it. We did the maths, trust us.
And as interest is calculated daily, by paying earlier in the month you’ll also save those days’ interest payments.
4. Pay in those lump sums
This is the part you probably don’t want to read. Your annual bonus? Your inheritance from Great-Uncle Charlie? Instead of spending it on luxury items you can live it without, pay it straight into your bond account.
In the early years of your mortgage, you’re probably only paying off the interest and the principal amount is going untouched. But every cent you put in above your repayment will reduce the capital amount you owe. It may be hard but those lump sum payments you can make into your bond will cut years off your loan.
5. Consolidate your debt
To most of us, debt is just debt. But some debts are more expensive than others. Your credit card debt, for example, could have an interest rate of more than 20% compared with 9.5% on your home loan.
So if you consolidate all your debts under your home loan, instead of paying off your credit card or personal loan at a rate of 20% or more, you’ll be paying it off at 9.5%, saving you thousands. And, with a bit of self-discipline, these savings can then go into paying off your bond account. Makes sense, doesn’t it?
6. Use your bond as a savings account
There’s no better place to stash your savings than in your bond account. Think about it. It makes sense for a bank to charge a higher interest rate to people borrowing money from them then it does for them to give a positive one to people saving with them.
So by depositing your savings into your bond you will receive the interest rate that the bank charges you on your loan as positive interest on the money you invest, which will be much higher than if you deposited it into your savings account.
Once you’ve secured your bond, there’s always the temptation to let the payments tick over and forget about it. After all, your home loan is likely to be the biggest debt you’ll accrue in your lifetime, and who wants a constant reminder of that? But, if there’s one final tip we can leave you with it’s this - stay informed. Try to stay up to date with what’s happening in the marketplace. You never know when an opportunity may arise that’ll help you decrease your bond.
Needing some advice or assistance? Contact Rawson Finance at www.rawson.co.za/resources/finance. We’d be happy to help.
