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SIMON BROWN: A paid-up house in eight years? It’s possible

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Forget the 20-year loan repayment period — and the huge interest bill it brings. If you’re thrifty and cunning, your home could be your castle much sooner, writes SimonPB.

I wrote last week about your credit score and how a good score increases your chances of not only securing a loan but potentially also getting a better rate.Say you’re buying a home for R1m and want a full home loan from your bank. If it’s approved, the bank will end up lending you the R1m with a matching asset of R1m should you default and not repay the loan. This does not leave the bank with much wriggle room to try to break even on the bad debt.

Staying with the R1m home loan, at the current prime rate of 9.75% that will cost you R9,485 a month, and in total over the life of the loan you’ll pay R2,276,440. You’ve paid more than the home just in interest.your monthly payments to R7,588 and the total payments will be R1,821,152. That R200,000 deposit has saved you R1,897 a month and R400,000 over the life of the loan.​

Over the 12 years of paying off your home loan, your monthly payments remain the same, and as you’re paying more, interest rate increases aren’t a worry.So, every year, increase your bond repayments by your salary increase. If we assume a 6% annual salary increase, you’re paying off your home loan in under nine years, and the total interest bill is now just a couple hundred thousand rather than the R1.2m, with no deposit and no increased payments.

Source: Loan Digest (loandigest.net)

 

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