If you are one of the lucky people getting a bonus this December, use it towards paying off your home loan before indulging in festive season buys.
Deats gives the example of a home owner paying off a bond of R500 000 with an interest rate of 9 percent over 20 years, who gets a bonus of R17 000 after tax. If they pay half of the bonus, say R8 500, into the mortgage, this could reduce the term of the loan by up to 10 months, equivalent to a saving of roughly R45 000 in instalments.
According to Craig Deats, executive director of sales and distribution at ooba, although consumers work hard throughout the year to earn a bonus and deserve to enjoy it, finding a balance between saving and indulgence is very important.
Deats advises consumers to 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.”
He gives the example of a home owner paying off a bond of R500 000 with an interest rate of 9 percent over 20 years, who gets a bonus of R17 000 after tax.
If they pay half of the bonus, say R8 500, into the mortgage, this could reduce the term of the loan by up to 10 months, equivalent to a saving of roughly R45 000 in instalments.
He explains that it is always useful to have some extra cash over the holiday period but putting half of the bonus into the mortgage can result in significant savings over the loan term.
Deats says while this option is definitely the most sensible option for forward-thinking home owners, it is sometimes difficult to part with the hard earned bonus, especially if you are not seeing immediate benefits.
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.
South African 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 one chance of getting a 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.”
Deats says since a home loan is paid back over a long period, a small deduction in the interest rate on the bond can save the homeowner thousands of rands in interest payments over time.
It is not only homeowners who could make good use of extra cash, would-be buyers and young people looking to enter the property market can put their money to good use.
In Port Elizabeth, Lew Geffen Sotheby’s International Realty franchise reports that the property market is a mixed bag of fortune creating real opportunities for serious buyers and investors to make their mark.
Young people particularly are urged to save money towards buying homes before the market turns against them.
Clarry Lesch, owner of the local franchise says many existing homeowners are very keen to downscale their lifestyles in order to curb expenditure or reduce debt.
They are increasingly inclined to negotiate their asking price and even to accept less than they paid for their property (especially if they bought in 2007 or 2008) just to be rid of it and free to get their own finances on track.
As a result, Lesch says this is a very good time for first-time buyers to be looking for bargains and with cash on hand from the bonus money, they are spoilt for choice.
“If buyers can put down a good deposit now, they may well find that their monthly bond repayment would be the same or even less than what they are currently paying in rent.”
She explains that there are still many distressed properties coming on to the market as their owners deal with the second wave of financial problems following the recession
As a result, Lesch says this is a very good time for first-time buyers to be looking for bargains and with cash on hand from the bonus money, they are spoilt for choice.
“We expect this to continue for the next 18 to 24 months, which we believe will be an exceptional window of opportunity for prospective buyers to accumulate deposits and acquire homes of their own”.
Lesch says after this, the surplus supplies of homes on the market will pretty much have been absorbed and prices will be under upward pressure once more.
Interest rates will likely also be higher by then and it will be more difficult for young people to qualify for loans, even if they do have deposits.
“It is likely to be a very long time before young prospective buyers will again experience the extremely favourable combination of buying conditions that currently prevail and they should do their utmost to take advantage of them.”
The rental market in Port Elizabeth is enjoying unprecedented strength, with high demand and a shortage of stock that does not seem set to be relieved any time soon because there are virtually no new rental units being developed.
Vacancy levels are extremely low and with interest rates at their current lows, rentals now quite often cover and even exceed the landlord’s monthly bond repayments on rental properties.
She adds that this is good news for property investors and for existing homeowners who are able to convert part of their home or build on a flat or two that they can let out to help cover their own expenses. – Denise Mhlanga
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