Home Loans

A thirty-year bond sees you reserve half your adult life to pay back the single largest debt you will most likely ever receive. The interest you end up paying over that period is also exorbitant, seeing you pay much more than the value of the property or home.

For this reason, home owners are finding ways to reduce their bond amount, not only to reduce the interest paid but to pay it off your bond or home loan quicker, without taking any drastic step such as re-mortgaging.

Certain financial service providers claim to offer products that enable homeowners to reduce their payment terms, but many of these aren’t effective. There are however, two very effective ways of reducing the amount you owe on your home loan that can be done simply and without a special home loan product, which can achieve a high premium reduction of five, ten and fifteen years.

If you take out a bond of R1 million rand over 30 years with an interest rate of 14%, you will pay off the R1 million as well as R3,265,538 in interest.

Pay off an extra amount every month
Taking out a bond over a period of 30 years will reduce your premiums, paying off an extra amount each month will save you both in terms of years and interest. To reduce your 30 year term to 25 years, you need to pay an extra R199 every month. This works out to a saving of R673,565 in interest and 5 years.

For a ten year reduction, pay an extra R600 per month and you will save about R1,250,000 in interest.

A fifteen year reduction in loan repayment will see you paying an extra R5,000 a month which saves you R2,412,329 in interest.

Pay a large annual sum
Instead of paying each month, you could deposit larger sums into your home loan account to reduce both the interest and the repayment term. To reduce your home loan from 30 to 25 years (on a home loan of R1 million at 14% interest), pay an extra R2,200 into the account once a year. You will save R673,000 in interest.

An extra payment of R6,750 into your home loan account each year will reduce your repayment term by 10 years (from 30 to 20 years) and save you R1,303,252 in interest over the period.

A fifteen-year reduction in repayment term will require an additional annual amount of R16,800 and will save you R1,894,396 in interest.

Large lump sum payments are more effective in both temporal and monetary terms than the monthly payments, but the monthly payments are easier to make.