Into my mort­gage?

CityPress - - Tenders -

IANDY ASKS:

have about R155 000 in a money mar­ket ac­count as an emer­gency fund. I want to pay off my home loan as quickly as pos­si­ble and am al­ready pay­ing ex­tra into my mort­gage each month. As I have an ac­cess bond, would it be a good idea to trans­fer the R155 000 into the mort­gage know­ing I can still ac­cess it in the case of an emer­gency?

CITY PRESS REPLIES:

There is an ar­gu­ment that you save more money by keep­ing your emer­gency funds in an ac­cess bond be­cause you are in ef­fect sav­ing the 10.5% per an­num in­ter­est on your mort­gage and it is tax-free.

It may still, how­ever, be a good idea to keep R20 000 ac­ces­si­ble in a money mar­ket ac­count for smaller emer­gen­cies or un­ex­pected needs which hap­pen more fre­quently; you don’t want to keep dip­ping into the bond.

Once you are close to set­tling the bond, con­sider keep­ing the ac­cess bond in place with a low bal­ance as this will give you ac­cess to cap­i­tal should you want to make another in­vest­ment.

Other ways to make your home loan work for you:

TOMMY NEL, HEAD OF CREDIT AT FNB HOME LOANS, PRO­VIDES A FEW AD­DI­TIONAL TIPS TO HELP YOU MAKE THE MOST OF YOUR HOME LOAN FA­CIL­ITY:

Pay your mort­gage on the day you get your salary. 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, based on a R1 mil­lion mort­gage at 10.5% in­ter­est.

By align­ing their debit or­der dates to fall on their salary date, con­sumers can also achieve this ben­e­fit and en­sure that what is prob­a­bly their most im­por­tant as­set is paid first.

Many con­sumers are not aware that cred­its into an ac­count are pro­cessed be­fore deb­its, mean­ing that you don’t have to sched­ule your debit or­ders to only run on the fol­low­ing day.

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.

USE YOUR MORT­GAGE TO SAVE FOR SCHOOL FEES

There are in­stances where pay­ing cer­tain costs in full, up­front for an en­tire year, such as for 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.

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 your 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 R2 000 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%.

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