Real Estate Investor Magazine South Africa Real Estate Investor Magazine - April 2017 | Page 24

FINANCING
Use Your Home Loan to Its
Full Potential
BY SAM MASHELE
A
home loan can be a sophisticated money
management tool, if managed correctly. “A
pre-paid home loan facility allows consumers
to transfer excess funds into their Home Loan,
effectively saving on interest while being able to use
the funds at no additional cost,” says Tommy Nel,
head of credit at FNB Home Loans.
Let’s look at different ways this can benefit you,
assuming you have a bond of R1 million which you
have at prime (10.5%), your current repayments will
be R9 984.
Daily capitalisation of interest
Interest is calculated daily and capitalised to your
home loan monthly. This means that any additional
funds that are put into your home loan, even if it is for
a day, will reduce the interest that you will be charged
for that month.
“Say for example, you are paid on the 25th of the
month, however, your various debt orders amounting
to R20 000, including your bond, go off on the 1st. By
placing the entire R20 000 into your home loan for
the five days this money will work for you by saving
interest on this amount of about R29 at your Home
Loan rate of interest for that month,” says Nel.
By aligning their debit order dates to fall on their
salary date, consumers can also achieve this benefit
and ensure what is probably their most important
asset is paid first. Having your debit order run on the
date of your salary saves you interest in the long run
and helps you protect your credit record by ensuring
your financial commitments are all settled.
Making full use of your pre-paid funds
“Prepaid funds allow you to access the power of
compound interest by saving at your home loan rate
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APRIL 2017 SA Real Estate Investor
of interest and the longer you leave the funds in your
home loan, the more you will unleash its potential,”
says Nel.
This can help improve your financial resilience
by helping you eliminate the need to use expensive
unsecured debt when you are faced with unexpected
expenses like your car letting you down or any other
little surprises.
“You can also save to build up enough prepaid
funds to allow yourself a payment holiday over those
difficult holiday months such as December, January
and April where there tends to be more month than
moola,” says Nel.
Pay upfront costs
“There are instances where paying certain costs in
full, upfront for an entire year, such as in the case of
insurance or school fees can help generate annualised
return on such an ‘investment’ of in excess of 15%,
depending on the exact terms of such offers,” says Nel.
Using the facility linked to your Home Loan and
regularly paying excess funds into your Home Loan
can make this possible, whereas funding annual
expenses from one’s monthly salary, is something that
is probably out of the reach of the majority of South
Africans.
For example, let’s assume your annual school fees
are R24 000, and you receive a 10% discount if you
pay the entire amount before the end of January. You
can either pay R2000 a month, or you can pay R21
600 on the 31st of January, using funds you have
saved in your Home Loan. The effective return on this
would be in excess of 20%
RESOURCES
FNB
www.reimag.co.za