With interest rates expected to stabilize and potentially decrease, it's a prime opportunity for homeowners to proactively manage their mortgages. By maintaining their current monthly payments even as the required minimum decreases, homeowners can yield substantial long-term interest savings while also reducing the overall repayment period. This savvy strategy could potentially shave off years from your mortgage, freeing up resources for other financial goals. Here are effective ways to maximize these benefits:
EXCEED THE MINIMUM PAYMENT:
The current average home price in South Africa is around R1,400,656. At an 11.75% interest rate, the minimum monthly repayment for a 20-year bond would be approximately R15,461. While imagining a lower rate of 10% might seem ambitious, historical trends, such as the 9.75% rate in August 2022, suggest it's possible.
If you continue paying the same monthly instalment of R15,461 at a 10% rate (overpaying the minimum by R1,693), you could significantly reduce the loan term to approximately 14.71 years, paying off a 20-year bond over five years earlier. Notably, you'd save nearly R981,015 in total repayments – a substantial sum.
The impact on a 30-year term is even more impressive. By maintaining a higher monthly instalment (e.g., R14,401) at the 10% interest rate, the loan term could be cut to just 17.53 years, reducing the total repayment by over R2 million (R2,154,257, to be precise).
LEVERAGE ONCE-OFF OVERPAYMENTS:
If you can't consistently pay above the minimum amount, occasional one-time overpayments are still beneficial. These work similarly to a home purchase deposit, allowing you to reduce the total loan amount and accelerate payoff.
Imagine putting an unexpected windfall (e.g., an end-of-year bonus, tax rebate, or inheritance) toward your bond. A R10,000 one-time overpayment on a 20-year bond of R1,426,656 at the current prime rate of 11.75% would decrease the total loan amount by R91,081. For a 30-year term, that R10,000 overpayment translates to impressive savings of R292,795.
By embracing these approaches, you enjoy several significant advantages:
- INTEREST SAVINGS: Additional payments directly reduce the interest you pay.
- FASTER EQUITY BUILDING: Early payoff builds home equity more rapidly, offering financial security and future investment possibilities.
- REFINANCING OPPORTUNITIES: A reduced loan balance may qualify you for better refinancing options, leading to further cost savings. Consolidating other debts under your favourable home loan rate becomes a possibility.
Paying off your mortgage sooner not only alleviates financial stress but also boosts your financial freedom. As your outstanding balance decreases, you'll have the flexibility to redirect funds toward other investments, retirement savings, or even property upgrades. The potential benefits are substantial, providing you with greater control over your financial future.
Intro Real Estate, it’s the right choice.
www.introrealestate.co.za // 011 422 3922
