How to reduce the time remaining on your home loan

Buying a home means having a space to call your own and a haven in which your family will make memories for many years to come. It also often means taking on a sizeable debt that you can spend 20 years paying off. The good news is that there are ways to significantly lower that 20-year period and pay off your bond far more quickly than you would have expected. Your ability to cut down your home loan period will depend entirely on your circumstances, but by following these three strategies, you have the potential to cut down both the duration of your loan and the amount of interest that you pay to the bank.

Strategy 1: Pay more than the minimum required payment

Paying more money into your bond every month than you are required to has remarkable results. Even if the extra amount that you pay is relatively small - think as little as R1 500 extra - it can potentially shave years off the amount of time that it takes you to pay off your home loan. Even better than that, it can shave hundreds of thousands of Rand off the amount that you have to pay back to the bank. While dipping into your expendable income to pay more than the required amount into your home loan can seem like a significant sacrifice, it can save you a jaw-dropping amount of money over time.

To get an idea of just how much money this could be, take a moment to consider the information offered by Ooba's Extra Payments Calculator. Consider a scenario in which your current bond debt is R1 000 000 and your remaining bond term is 20 years, at an interest rate of 7%. If your monthly bond payment is R7 500 and you are able to make a recurring monthly payment of R1 500 into your home loan, your loan can be reduced to 14.97 years, and the total loan amount can be reduced by a staggering R183 714. These figures will obviously fluctuate if there is a change to the interest rate.

Strategy 2: Invest windfalls in your home loan

Sometimes, financial windfalls come our way, whether expected or unexpected. This could be a 13th cheque, a performance bonus or an inheritance. Investing these amounts in your home loan will also have a drastically lower the amount of interest that you have to pay and the amount of time that it will take to pay off your home loan. Using the same scenario as above, Ooba shows that a once-off overpayment of R100 000 can reduce the total loan amount by R147 524 and reduce the total loan term from 20 years to 17.25 years. 

Strategy 3: Get an access bond and deposit your savings into your bond

Having an access bond means that you can store your savings in your bond and still draw these funds out for a crisis or a rainy day. Depositing your savings into your bond will decrease the capital amount upon which the bank is charging you interest - and this means paying less interest over time. The interest rate charged on a home loan will invariably be higher than the interest rate that the bank pays you for having money in an investment account. An access bond therefore makes your money work harder for you than a savings account does - and can help you reduce the amount of time required to pay off your home loan. 

Setting a specific and realistic date on which you would like to make your final home loan payment can be a great motivator. Not having to pay a home loan will free up a huge percentage of your monthly income, which can then be put towards another goal, whether that is buying a second property, going on a dream holiday or saving for your child's education. Contact Jawitz Properties for more information about buying property and reducing your home loan as quickly as possible.