SA Consumers Urged to Use 13th Cheque to Pay Off Home Loan Debt this Festive Season
Category Property News
Employees fortunate enough to receive a bonus this December should consider putting a portion of their ‘13th cheques’ towards paying off their home loans, before indulging in festive season spending.
This is according to Craig Deats, Executive Director, Sales and Distribution of ooba, South Africa’s leading bond originator. “Although consumers work hard throughout the year to earn a bonus and therefore deserve to enjoy it, finding a balance between saving and indulgence is very important, especially at this time of year.”
Deats advises that consumers deposit some of their annual bonus into their home loan. “It is a great Christmas gift that will result in large savings over the term of the loan.”
For example, assume a home owner paying off a bond of R500 000 with an interest rate of 9% over 20 years, gets a bonus of R17 000 after tax. “Paying half of the bonus, i.e. R8 500, into the mortgage could reduce the term of the loan by up to ten months, equivalent to a saving of roughly R45,000 in installments.
“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.”
Deats says while this option is definitely the most sensible option for forward-thinking home owners, it is sometime difficult to part with the hard earned 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 that potential home owners should also look to save their 13th cheque lump sum towards a mortgage deposit, due to the numerous economic benefits a deposit creates for prospective home owners.
“Banks look favourably at buyers with a deposit and will be more open to negotiate a competitive interest rate on a home loan, as a result of the reduced risk to the 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 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 deduction in the interest rate on your bond, can save you thousands of rands in interest payments over time,” concludes Deats. (Courtesy of OOBA)
Mike Bennett
