Johannesburg – Many homeowners would love to fast-forward to when they own their houses outright and no longer have to worry about monthly mortgage payments.
As a result, the idea of paying off mortgage early could be worth exploring for some people. The best reason to pay off debt early is to save money and stop paying interest.
Rhys Dyer, the CEO of ooba, South Africa’s largest home loan comparison service, provides a handful of tricks, some of which may even have you paying off your bond 10 years early.
• Find extra cash Cash in your emergency savings accounts and deposit those funds into your bond account. This will give you tax benefits. Another way of raising extra cash to reduce your bond account is to sell unused furniture/ appliances such as that old tumble dryer or TV.
• Pay extra into your bond Consistently adding just R1 000 to your monthly bond payment can make a big difference, Dyer says.
• Apply pay raises to your bond One way to find extra cash to put toward your home loan is to deposit money you get from raises and bonuses.
“The goal is to put the same percentage of your income toward your bond, even when your pay goes up,” says Dyer.
“In other words, if you’re currently putting 15% of your income toward your bond payment, 15% of each annual raise amount should also go toward your bond, in addition to what you’re already paying.”
• Use cash windfalls to pay lump sums Instead of paying a little extra each month, you could pay a large lump sum here and there, suggests Dyer.
“This can be done with a cash windfall such as from an annual tax refund, 13th cheque or bonus.”
So, if you put R30 000 toward your home loan when you get your tax refund, all of your payments from there on are a little more effective because less of them are going toward interest.
• Set a target pay-off date “Setting a target pay-off date allows you to know how much extra to pay each month to be bond-free by a certain date,” says Dyer, adding that you’ll have the extra motivation of marking your calendar to plan the celebration.
A bond repayment calculator is good to help you do the maths.
Let’s say you want to pay off that R1.5-million bond in 15 years, when your child goes to university.
You’ll need to put an extra R1 624 toward your payment each month. What if you want to pay off your bond in 10 years? You’ll have to increase your payments to R2 031.
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