Get­ting a 13th cheque? Use it to re­duce your home loan, says mort­gage ex­pert

Weekend Argus (Saturday Edition) - - PROPERTY -

EM­PLOY­EES FOR­TU­NATE enough to re­ceive a bonus this De­cem­ber should con­sider us­ing a por­tion of it to pay off t hei r home l o a ns, b e f o r e in­dulging in fes­tive sea­son spend­ing.

This is ac­cord­ing to Craig Deats, ex­ec­u­tive di­rec­tor for sales and dis­tri­bu­tion at bond orig­i­na­tor ooba.

“Although con­sumers work hard through­out the year to earn a bonus and de­serve to en­joy it, find­ing a bal­ance be­tween sav­ing and in­dul­gence is very im­por­tant, es­pe­cially at this time of year. They should de­posit some of their an­nual bonus into their home loan – it’s a great Christ­mas gift that will re­sult in large sav­ings over the term of the loan.

“It is al­ways use­ful to have some ex­tra cash over the hol­i­day pe­riod, but even putting half of your bonus into your bond can mean sig­nif­i­cant sav­ings over the term of your loan.”

For e xam­ple, as­sume a home owner pay­ing off a bond of R500 000 with an in­ter­est rate of 9 per­cent over 20 years, gets a bonus of R17 000 af­ter tax. Pay­ing R8 500 into the mort­gage could re­duce the term of the loan by up to 10 months, equiv­a­lent to a sav­ing of roughly R45 000 in in­stal­ments.

Deats says although this op­tion is the most sen­si­ble op­tion for for­ward- think­ing home own­ers, it is some­time dif­fi­cult to part with the bonus, es­pe­cially if you are not see­ing im­me­di­ate ben­e­fits.

“Home own­ers need to keep the long-term ben­e­fits in mind. In­stead of spend­ing the en­tire bonus on Christ­mas presents or a short, fes­tive sea­son break, re­mem­ber that the long-term sav­ings could con­trib­ute to some­thing much more sig­nif­i­cant, like a trip abroad.”

He says po­ten­tial home own­ers should also look to save their 13th cheque lump sum to­wards a mort­gage de­posit, due to the many eco­nomic ben­e­fits a de­posit cre­ates f or prospec­tive home own­ers.

“Banks look favourably at buy­ers with de­posits and will be more open to ne­go­ti­ate com­pet­i­tive in­ter­est rates on home loans, as a re­sult of the re­duced r i s k t o t he bank. Be­sides im­prov­ing your chances of get­ting your home loan ap­proved, a big­ger de­posit could re­sult in a more favourable bond rate that will save you thou­sands in in­ter­est over the term of the loan.

“As a home loan is paid back over a long pe­riod, gen­er­ally be­tween 20 and 25 years, even a small re­duc­tion in the in­ter­est rate on your bond can save you thou­sands of rands in in­ter­est pay­ments over time,” says Deats.

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