We’ve seen many financial institutions offer their customers a debt payment holiday during these trying times. And while it may seem like a welcome relief, be careful because it might end up costing you a lot more than you realize.
According to the Old Mutual Savings and Investment Monitor, 35% of people surveyed had taken a debt repayment holiday on their home loan. While this might seem like a good option, especially if your income has been affected during the national lockdown, it will add significantly to the length of the loan.
According to Nedbank, if you were five years into your repayment and took a three-month payment holiday on a R1 million home loan, it would extend your home loan by an additional 14 months and you would pay R106 000 in additional interest.
You must plan to increase your repayments once your salary recovers, so that you can still pay off your home loan in the original time frame and save on interest. In order to do this, in 12 months’ time increase your mortgage repayments by 5%.
For example if your repayment is R10 000, increase it to R10 500 a month. If you cannot afford to do that, at least increase your repayment by one percent each year, which in this case is an increase of just R100 a month.
Remember to increase that every year. You can do this by simply depositing the additional amount into your bond account monthly or request the bank to increase the amount of your monthly debit order.
Remember that a payment holiday is like a normal holiday: it ends up costing a lot of money. Only take this option if you really cannot meet those repayments.