Real Estate Investor Magazine South Africa September 2018 | Page 30

FINANCE
How to
pay off your home in 10 years
I
f you have a R1m home loan, payable over 20 years at the
current prime interest rate of 10%, you are set to pay more
than R1,3m in interest by the time you’ve paid off that
bond and your home is finally yours.
But if you could pay it off in 10 years, you would save R730
350 in interest – and be able to live free of a monthly bond
instalment in your own, fully paid-for property.    
“That is the dream for an increasing number of homebuyers,
and while it may be difficult, it is not impossible, says Rudi
Botha, CEO of BetterBond, SA’s biggest bond originator. “On
a R1m bond, what it requires currently is an additional month-
ly repayment of R3565 into your home loan account.
 “Looked at another way, you would need to add a total of
R427 800 to your bond repayments over the first 10 years (120
months) of your 20-year bond, to save R730 350 in interest,
which is like getting a 70% return on your investment. Even
better, at the end of that process the property would be yours
and you would have no monthly instalment to pay.”
 Unfortunately, he says, most borrowers don’t have an extra
R3565 available every month, especially if they are first-time
homebuyers, so they need to look at alternative plans for be-
coming “bond free” as quickly as possible.
 “And the best is to buy a less expensive home, if possible.
On a bond of R750 000, for example, the minimum month-
ly repayment to pay the home off in 20 years is some R2400
a month less than on a bond of R1m, while the additional
monthly repayment to pay the home off in 10 years is some
R2700.
 “Thus buying a cheaper property might well create the nec-
essary budget leeway to pay it off in 10 years – and once again
save a huge amount of interest. And if the property is then
too small, for a growing family for example, it can be sold and
all the proceeds used to pay a really substantial deposit on a
bigger, more expensive home, which will once again give the
owners the opportunity to pay it off faster.”
 Botha notes that borrowers can achieve the same sort of
effect by paying a bigger deposit to reduce the R1m loan, but
that saving an additional 20% or 25% of the property purchase
price is usually extremely difficult for first-time buyers who
are also still paying rent. “This is why they should rather buy
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SEPTEMBER/OCTOBER 2018 SA Real Estate Investor Magazine
something less expensive that they can also live in while start-
ing to pay it off as soon as possible.
 “We still recommend a deposit of at least 10%, however, to
improve their chances of being approved for a home loan, at
the best possible interest rate. At the moment, a rate conces-
sion of just 1% on a R1m bond would reduce the minimum
monthly repayment by around R650 rand, and if just that
amount were to be ‘re-invested’ back into the bond, it would be
paid off in under 17 years.”    
 As for those who have already purchased a property and
would like to pay it off faster, he says they should consider the
following suggestions:
• Rent out your unused space. Many people are making extra
cash these days by using Airbnb to rent out a spare room
to travellers, or letting their granny flat, garden cottage or
converted garage to a student, and although this income is
taxable, there should still be enough left over to help bring
your ‘bond liberation day’ significantly closer. Paying an
additional R1000 a month off a R1m bond will cut almost
five years off the repayment period and save R359  000
worth of interest.
• Pay your annual bonus or any other lump sums of money
you receive into your bond account. Tax refunds, gifts and
any money you might inherit can all help to shorten the
life of your bond. You should also look at selling unwanted
goods and assets for extra cash to put towards this worthy
cause.     
• Find a way to earn extra money. Take extra shifts at work,
make and sell something at your local weekend market, or
look for some ev ening, holiday or freelance work to bring
in additional income that you can put straight into your
bond account. At the same time, keep a tight rein on your
budget and eliminate all unnecessary expenditure. Every
little bit you can save and add to your monthly instalment
will bring you that much closer to the day when you have
no bond left to pay off.
Source: Betterbond
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