How to use your bond for bigger savings

Many SA homeowners are missing out on the benefits of saving by paying an additional amount off their bond every month, says Rudi Botha, CEO of bond originator BetterBond.

"The latest Old Mutual Savings and Investment Monitor shows that only 25% of home-owners are currently paying more than the minimum bond instalment every month, while 5% occasionally add a lump sum such as a tax refund or a bonus cheque to their minimum monthly repayment," says Botha.

"And yet, one of the best investments homeowners can make is to use any additional money they have available to shorten the repayment period of existing debts, and especially their home loans." The reason is that the amount of interest you will save by paying your home loan off early will in most cases far outweigh the returns you could hope to make by putting your savings in the bank.

What is more, these returns will be entirely tax free, and if you have an access bond your money will be easily available if you should need it in an emergency.

Botha says the latest BetterBond statistics indicate that the average home loan granted is now around R975 000, which means that at the current prime rate, the average minimum monthly bond repayment is about R9 600.

A homeowner who pays only this minimum amount each month will pay more than R1.3m in interest over the lifespan of a 20-year home loan.

On the other hand, the home-owner who pays just 10% more than the minimum each month – or an additional R960 per month in the example above - will pay off the home loan in 15 years and four months – and save some R360 000 worth of interest in the process.

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