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14 Oct 2016

1. Get rid of short-term debt
Reduce or completely cut any short-term debt before taking up a home loan.
“It’s the small things that add up, for example, not purchasing that daily cup of coffee at R15 over 5 days and over 50 weeks a year, could mean an additional R3 750 freed up to put into your bond,” says Barker.
“Similarly, cutting out that R500 a month spend on short-term accounts that are not necessities means an additional R6 000 saving a year.”
He says these two simple savings tips could mean around R9 750 extra per year freed up to be paid into your bond, which leads to months shaved off your bond term and hundreds of thousands in interest savings.

2. Pay any extras into your home loan
Barker says paying off your bond sooner will not only save you a lot of money, it will also put you in control of your future financial goals.
Pay your bonus or surplus cash as a result of a salary increase into your home loan.
“Being disciplined by not spending this cash on other luxuries can cut years’ worth of interest off the loan term,” says Barker.

3. Don’t reduce your monthly repayments if a rate cut occurs
Rather use this to your advantage by keeping your payments the same as before, which will count as additional payments being made, allowing you to cut the lifetime of the loan.
“It is possible to pay off your bond in less than 20 years, just remember that little things can make a very big difference, and a bit of discipline goes a long way,” says Barker.
For example, say you take a loan for R850 000 at an interest rate of 12% per annum over 240 months (20 years).
Barker says the assumption is that the interest rate remains at 12% for the entire loan term. Making additional payments to your monthly minimum instalment of just R300, R500 and R1000 can have a significant impact on the term and interest saved as illustrated below:
Additional payment Term reduction months Term reduction years Interest saving
R300 27 months 2.3 years R179 140.04
R500 41 months 3.4 years R274 369.29
R1 000 68 months 5.7 years R454 068.55

Barker also offers advice to those looking to buy a home:

1. Check affordability
Before applying for a home loan, you must have a clear idea of what you can afford in terms of monthly bond instalments and expenses.
“This will help you determine if you can afford the payments and the costs associated with owning a home, such as water and electricity, rates and taxes, maintenance, insurance or other unforeseeable expenses that can arise,” says Barker.

2. What do you have left?
“It is possible to pay off your bond in less than 20 years, just remember that little things can make a very big difference, and a bit of discipline goes a long way,” says Barker.
Once you know what your monthly expenses are, check if you will have a couple of hundred rands more to spare.
“If the monthly repayments are more than what you have budgeted for, the price of the property is beyond your means,” says Barker.
“Look for a home within a lower price range to avoid finding yourself in a position where you don’t have money left after paying your bond or spare money to save.”

3. Over-budgeting is the safest route
Barker says it is best to always avoid taking a home loan that matches the maximum you have allowed in your budget for repayment.
Having additional cash in your budget means that, should circumstances allow, you could pay a few hundred rands more over and above your minimum monthly installments, which again translates into paying your bond off over a shorter term, paying less in interest, and affording you more time to save for retirement.

4. Never underestimate the value of a deposit
Saving for a deposit before you actually make a home purchase will not only lessen the loan amount, but will give you practice on the discipline needed to save or pay off this loan amount a lot faster, says Barker.