Real Estate Investor Magazine South Africa November 2015 | Page 20

INSIGHT

Slashing

your bond repayment
Slashing your bond repayment time in half
BY MEYER DE WAAL

One of the biggest investments you will ever make is
when you purchase your own property. Similarly if you
utilise a loan from a bank to finance the transaction, it
will most likely be the biggest debt you will ever take
on, debt which could stay with you for twenty to thirty
years, depending how long the bank will grant you to
pay back the home loan.
The burden of Interest
The reason why a home loan becomes such an extensive
debt burden is because of the interest payable. In the
below example we examine the impact that an interest
rate of an additional 2% can have.
Scenario 1 – Interest Rate 9.5%
Home loan amount – R 500 000
Home Loan Term – 20 years
Interest Rate - 9.5%
Monthly Repayment – R4 661
Total Payment – R1 118 557
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NOVEMBER 2015 SA Real Estate Investor

Scenario 2 – Interest Rate 11.5%
Home loan amount – R 500 000
Home Loan Term – 20 years
Interest Rate – 11.5%
Monthly Repayment – R5 332
Total Payment – R1 279 715
While the 2% increase in the interest rate on a R500
000 home loan only results in R670 increase in the
monthly repayment, it adds a staggering R161 158
of additional interest payable over the 20 year period.
If, instead of paying off a higher interest rate, this
additional R600 a month is paid into the bond as an
extra monthly payment on a lower interest rate loan, it
makes an enormous difference to the interest payable
and the term of the loan.
So if you want to reduce the debt burden of a home
loan significantly, ensure that you get the best interest
rate possible when negotiating the loan. Do this by
saving up a deposit and by keeping your credit profile
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