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Adding a little extra on bond repayments goes a long way

Regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett, notes that expenses tend to increase this time of year as we stock up on gifts and increase our entertainment spending.

Homeowners who add a little extra towards their bond repayments each month stand to knock off hundreds of thousands of Rands in interest charges as well as years off their loan term.

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Regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett, note that expenses tend to increase this time of year as we stock up on gifts and increase our entertainment spending.

“Instead of getting carried away with elaborate presents or big holiday plans, why not give yourself the gift of greater financial freedom by adding a little extra towards your home loan each month?

“Not only will this save you greatly on interest charges and reduce your loan term, but it will also help you prepare for any upcoming interest rate hikes which may occur in the year ahead,” he said.

To give homeowners an idea of what they stand to save, South Africa’s leading bond originator, BetterBond, provides the following example: by paying just R1 000 extra each month on a 20-year bond for an R1 million home, at the current prime lending rate of 7.25%, it’s possible to save about R219 000 in interest and reduce the loan repayment period by four years.

If this does not sound convincing enough, Goslett encourages homeowners to think about what they could do with that R219 000 savings.

According to an article published by Business Tech, private school fees for one child range between R100 000 and R200 000 per year.

A four-year university degree costs around R300 000.

“At the cost of putting an extra R1 000 per month towards your home loan, you could have saved enough on interest charges to put one child through a year of private schooling or to have paid for a four-year university degree,” said Goslett.

Practising some financial discipline now will also help homeowners adapt their budgets ahead of any further interest rate hikes.

“Interest rates will not go back to double digits overnight. However, it is likely that we will see one or two more hikes over the course of 2022.

“Having the foresight to budget for this now will save homeowners the heartache of falling behind on repayments later,” Goslett said.

“If the pandemic has taught us anything, it is to be prepared for the unexpected to build up enough equity to last through tough financial seasons. The last thing you want is to find yourself in a position where you cannot keep up with the repayments on your home loan.

“If ever you find yourself in a tight spot and are struggling to keep up with repayments, speak to one of our Certified Distressed Property Advisors to learn about your options before the situation gets any worse,” he said.

As a final piece of advice, Goslett encourages homeowners to adopt a long-term view when evaluating their financial position.

“Those who receive an annual bonus or happen to find themselves with money to spare would do well to spend that money wisely.

“While it is good to reward yourself for hard work and to enjoy prosperous seasons, it is also advisable to pay down debt as soon as possible and to make sure there is enough set aside in case of emergencies,” Goslett said.

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