Making your Home Loan work for you

A home is a serious investment and, like all investments, it needs to be managed properly in order to ensure that you get the best possible return. But few people, once they’ve had their home loan registered and start repaying the loan, give their most important investment another moments thought. Yet there are a number of important steps that a homeowner can take to ensure that their hard-earned money is being put to good use:

Increase your home loan repayment:

When you borrow money “Home Loan” to purchase a home you are in effect taking out two loans. The first loan is to repay the capital amount (known as the principal sum) and the second loan is to repay the interest charged over the period of the loan. The majority of the money you repay in the first years of having a home loan goes towards paying back this interest, which will only marginally reduce the principal sum.

In South Africa, interest is generally calculated daily on your mortgage. In effect, this means that the amount you owe the bank increases every day. Because of the nature of compound interest, regular additional repayments made at the beginning of your loan term will have a much greater effect on the cost of your home loan than if you start paying extra cash into your home loan account five or ten years down the line. However, even if you are already a number of years into your loan term, you can still make a considerable saving by paying additional money into your home loan. By increasing your monthly instalments, you’ll reduce the term of your home loan, which means that you won’t be paying heavy home loan instalments in later years. The result is that you will have paid less money in interest over the term of the home loan.

There are a number of easy ways that you can put additional money into your home loan without really feeling the difference in your pocket:

• Put the additional income you receive from your annual salary increase into your home loan
• When interest rates decrease contact your lender “ Banks Home Loan Department” and ask them to maintain the instalment that you were paying prior to the drop on lending rates
• Put a portion of your annual bonus into your home loan, you may put extra money into your home loan anytime you want to. Every little bit helps. Making a prepayment ‘ Home Loan Deposit’ when the loan registers is particularly helpful, as you will reduce the capital amount immediately, significantly reducing the total interest payable over the term of the loan.

Use your home loan as an interest – bearing savings account:

Banks are in business to make profit so it makes sense that they charge a higher interest rate to people borrowing money from them than they do to investors who deposit funds with them. For example you might be receiving 2% interest on a positive balance for money in your savings account, but are probably being charged a much higher rate for the money you’ve borrowed to pay off your home loan.

By depositing your savings into your home loan, you are in effect receiving the interest rate that the bank charges you on your loan as positive interest on the money you invest For example, if you have a home loan for R1 million, and you deposit an extra R100 000 into your home loan, you are now no longer being charged interest on R1 million, but rather on R900 000. The money you save in interest over the time that you keep the R100 000 in your home loan is the positive interest you are in effect receiving on the money you’ve deposited. Plus you can withdraw this cash when you need it without being penalised ‘Banks Terms and Conditions Applies’

For further information contact Morne Prinsloo on 011 327 4489 or email morne@mortgagepluscc.co.za

If you would like to know more about your home loan services and mortgage requirements please phone the Mortgage Plus Head Office on:

Attached please find the Home Loan Application Form * - Short Home Loan Application Form

0861.11.11.93

info@mortgagepluscc.co.za

www.mortgagepluscc.co.za

Don’t overload your home loan

It may be tempting to consolidate household debt by utilizing a refinancing option on one’s home loan, but homeowners need to be careful that they are not jumping out of the frying pan and into the fire by placing too heavy a burden on their repayments.

This warning comes from Morne Prinsloo, MD of Mortgage Plus, who adds that overloaded monthly bond repayments could result in the bondholder losing his most important asset at the end of the day through foreclosure by the bank in the event that he fails to meet his installments.

“Banks do offer convenient ways of refinancing other household debt, particularly as home loan mortgage rates are generally lower than overdraft or credit card rates at the moment,” says Prinsloo.

“But consumers need to be careful that they are not pushing up their loan repayments to unmanageable levels by doing this.”

Prinsloo adds that consumers also need to be aware of the costs associated with applying for further home loan facilities. These could include property assessment fees and bond registration costs. “Consumers should ensure that these costs do not nullify the benefits of the lower interest rate saving,” he cautions.

“Consumers also need to be careful not to finance certain items over the full 20 year period of the loan. For example, the repayments on a car only last for a maximum of five years so the consumer needs to ensure that he pays this money back into his home loan account within the same period of time by increasing his monthly repayments accordingly.”

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za