Real Estate Investor Magazine South Africa November 2015

UPFRONT reduces the bond term – and if you shorten your bond term, you save thousands of rands in interest. Consider these two scenarios, comparing the effect of paying the minimum monthly instalment vs paying an additional R500 per month Scenario 1 – Minimum Monthly Instalment Home Loan Amount – R500 000 Home Loan Term – 20 years Interest Rate – 9.5% Monthly Repayment – R4 661 Total Repayment - R1 118 557 Scenario 2 – Minimum Monthly Instalment Home Loan Amount – R500 000 Home Loan Term – 15.5 years Interest Rate – 9.5% Monthly Repayment – R5 161 Total Repayment - R955 051 If you pay just R500 extra into your bond every month, you will shorten the term by four and a half years and save R163 506 in interest. How easily R500 per month can be wasted on unnecessary expenses! Using just R500 more wisely each month can significantly improve your financial situation. And if you increase the extra amount from R500 to R750 per month, you can save a whopping R214 081 in interest and pay off your home loan in 14 years. Extra Windfall If you receive a bonus or a cash windfall, consider paying that into your bond account. Consider the below example: Scenario 1 – No Lump Sum Home Loan Amount – R500 000 Home Loan Term – 20 years Interest Rate – 9.5% Monthly Repayment – R4 661 Total Repayment – R1 118 557 Scenario 2 – Once-off Lump Sum Home Loan Amount – R500 000 Reduced Term – 19.4 years Interest Rate – 9.5% Monthly Repayment – R4 661 Once-off lump sum – R6 000 Total Repayment – R1 086 175 20 NOVEMBER 2015 SA Real Estate Investor With proper planning, you can slash the interest burden of a home loan by thousands of rands and reduce the time period you are indebted to the bank by years. On a bond of R500 000, paid back over 20 years at an interest rate of 9.5%, and extra once-off payment of R6 000 will slash your total bond repayments by R32 382 and shave eight months off your bond repayment term. It translates into a 539% return on your R6 000 investment over 20 years – certainly a smart way to invest R6 000. With proper planning, you can slash the interest burden of a home loan by thousands of rands and reduce the time period you are indebted to the bank by years. Start by getting the best interest rate and the shortest loan term possible, and then reduce both the term and the interest payable by making any extra payment you can each month and investing any bonus or cash windfall into the biggest investment you have made. TOP TIPS FOR EFFECTIVE BOND REPAYMENT 1. Put down as large a deposit as possible. Not only is your finance application more likely to be approved by your bank with a sizeable deposit, a larger deposit reduces your monthly repayment on the loan as well as the overall amount you will have to repay. 2. Negotiate the lowest possible interest rate on your bond. Even a small reduction in the interest rate on your home loan will significantly lower your monthly repayments 3. Push all extra cash into your repayment. If your primary goal is to settle your bond account as quickly and as efficiently as possible, a great way to go about it is to pay any extra cash – tax refunds, bonuses, anything – or a portion of the amount into the loan account. 4. Pay your bond as early as possible. When your finances allow it, you can make the bond payment earlier in the month as interest is calculated daily and you will then save those days’ interest payments. 5. Use your Bond account to save. When you are saving up for expensive items, keep the cash in your bond account – if you have an access facility on the account – until you need it. Once you draw the money your balance will obviously go up again, but your interest will have been tempered a bit. RESOURCES www.mybondfitness.co.za www.reimag.co.za

Real Estate Investor Magazine South Africa November 2015 | Page 22