Smart sav­ing us­ing your home loan

Finweek English Edition - - MONEY - BY GLENDA WIL­LIAMS

Pay­ing off a bond ear­lier can save home­own­ers a bucket load of money, and it can also be used as an ef­fec­tive sav­ings tool. So how does it all work? You pre­pay into your bond ac­count. Not only do the ad­di­tional funds that you pay into your bond save you in­ter­est as it re­duces the term and amount of the loan, it also gen­er­ates sav­ings at an in­ter­est rate su­pe­rior to that of most sav­ings ac­counts.

How it works

“Pre­pay­ing es­sen­tially means that you need to put ad­di­tional cash into your home loan ac­count,” says Tommy Nel, head of credit at FNB Home Loans. “This ad­di­tional cash works for you by re­duc­ing the out­stand­ing bal­ance that you will be charged in­ter­est on. If you con­sis­tently re­pay in ex­cess of the min­i­mum, your loan bal­ance re­duces much quicker which has two benefits in that you can pay off your loan sooner or, have ac­cess to pre­pay­ments in fu­ture, if you need it.”

On a nor­mal, 20-year home loan of R1m, pay­ing the min­i­mum in­stal­ments at prime of 9.25% would cost you R9 159 a month. “In­creas­ing your re­pay­ments by 10%, to R10 075 will al­low you to pay off your loan four years sooner, as well as give you ac­cess to funds of just un­der R70 000 within five years of keep­ing up th­ese ad­di­tional pay­ments. Your to­tal in­ter­est sav­ing un­der this op­tion would be 25%,” says Nel.

The flexi-bon d vs the non flexi bon d

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