If you’re paying off a home loan each month, you may already be aware that a large chunk of your monthly installment goes toward paying off the interest on your bond. In order to save on interest payments, it’s helpful that you make an effort to pay extra amounts into your bond whenever possible.
According to Adrian Goslett, CEO of RE/MAX Southern Africa, even a small extra payment each month can shorten the length of your bond significantly. Quoted recently in a property24 article, Goslett explains that a 20-year bond of R500 000 at 12.5% could be paid off almost four years earlier by simply paying an extra R300 per month. This translates to a saving of almost R200 000.
Taking Control of Your Bond
The faster you pay off your bond, the more you will be able to invest in other assets like Unit Trusts or even a second property which could bring you a rental income each month.
If you are fortunate enough to have a large surplus each month, consider the fact that by doubling your monthly bond payment you could pay your home loan in full within just 5 years. All the money you spend on your bond each month could be invested, either towards your child’s education or used to buy a second property which would be paid off faster with rental income.
If doubling your monthly bond payment is far out of reach, don’t despair – by increasing your bond payment buy even a few hundred Rand per month you will save in the long run. By investing the money you would have been paying as interest, you will no longer be paying interest but rather investing the money wisely.
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