You are Here > Home > YouTube Channel > Video: Home loan tips

Video: Home loan tips

Sep 28, 2021

Buying a home is a major financial commitment. While the rate of interest on a home loan is lower than for other forms of credit, the length of time it takes to pay off the loan means you end up paying a hefty interest bill.

By reducing your interest rate, you can save a significant amount of money.

A deposit reduces the principal debt and could get you a lower interest rate

By putting down a 10% deposit you immediately reduce the amount you borrow and therefore the total interest you will pay.

For example, a R100 000 deposit on a R1 million property will reduce the monthly installments by R800 and save you R86 000 in interest.

When calculating your interest rate, a bank will assess how much they would lose if the property were foreclosed. Therefore, paying a higher deposit reduces the loan-to-value ratio (LTV), which could result in the bank offering you a more favourable interest rate, as their risk exposure is reduced.

A good credit record gets you a lower interest rate

By managing your financial affairs and paying creditors on time, you will get a better credit score and therefore you could qualify for a lower mortgage interest rate.

By building up a deposit and living within your means, you will show the bank that you can manage your finances and are less likely to default

The longer the term of the loan, the more interest you pay

It may be tempting to structure your home loan over 30 years in order to lower your monthly repayment, but that will cost you significantly more in interest.

With a 30-year home loan you could pay 64% more in interest compared to a 20-year term.

If you have taken out a 30-year mortgage, aim to increase those repayments once you can afford to.

It is worth noting that you can take out a mortgage for whatever time period you can afford – even as little as five years.

The best way to save interest is to pay in more than the minimum required

Paying a bit extra on your home loan every month will help you reduce the principal debt that the interest is calculated on. This will allow you to save on interest payable and reduce the term of your loan considerably.

For example, paying R1 000 extra every month on a R1 million home loan over 20 years at an interest rate of 7% could save you R208 000 in interest payments, and reduce your repayment term to less than 16 years.

When you apply for a home loan, don’t stretch yourself to the maximum

Ideally, you want to purchase a home where you can afford to pay an extra 10% into your mortgage each month.

Apart from paying off your home sooner, you also give yourself a buffer if interest rates rise or if you fall into financial difficulty.


Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

When debt review works

Going into debt review is like going on a diet: it’s difficult to stick to and the results won’t be immediate, but it can be life changing. While there are serious issues around the way some debt counsellors conduct themselves, for Grace Bekwa, debt review gave her...

Who will inherit your property?

When a person dies intestate (which means without a will), it can become a legal and financial nightmare. If you have property, it’s important to have a will in place which takes the law into account (such as the type of marriage contract you have), and clearly...

Don’t rush into debt review

While debt review can be a lifeline for an over-indebted consumer, it should not be entered into lightly. You need to be aware that once you enter debt review, you cannot apply for new credit, and you cannot exit debt review until all your debts are settled. There is...

Video: Being rich vs being wealthy

In his book The Psychology of Money, Morgan Housel writes about the difference between being rich and being wealthy. He defines riches as an income you earn, because that allows you to take on the debt to buy that R800 000 car or R40 000 handbag. Wealth on the other...

Video: Marriage and money

When couples marry, including Customary Marriage, they will automatically be married under community of property, unless they sign a separate antenuptial contract. This is seen as a way to protect women, especially those who stay at home to raise the family. The term...

Video: Your money behaviour

Have you ever wondered how your money behaviour compares to that of your peers? Where do they save? What do they spend their money on and how much debt do they have? On this edition of Money Matters, we chat to Akash Dowra, Head of Client Insights at Discovery Bank,...

Video: Five tax myths

Many employees don't understand the complex tax calculations made by their companies and they often question these deductions. According to tax specialist Tanya Tosen, there are five key things an employee needs to understand when it comes to their tax. Myth one:...

Struggling with car debt? Take action now!

According to the Experian Consumer Default Index, repayment of car debt has shown a marked deterioration as the extended Covid-19 lockdown puts South Africans under more financial pressure. Marc Friedman, CEO of car sale platform says that to avoid a...

Video: Money is different for women

Did you know that 80% of women will manage their own finances during their lifetime, either because they have remained single, gotten divorced, or been widowed? And the reality is that money and finances are different for women. Why? We know from South African salary...

Video: How to change your money habits

We know from studying history, that entire generations can share a similar money attitude or behaviour based on a major financial event that their generation experienced. People who grew up during the great depression of the 1930s, and those who grew up during World...

Pin It on Pinterest

Share This