02 Jan 2013
Although New Year’s resolutions are notoriously difficult to keep, there is one that can really deliver enough financial benefits to keep homeowners motivated for a whole year.
“A promise you should make to yourself is to “invest” something in your bond every month," says Rudi Botha, CEO of leading mortgage originator BetterBond.
He says this is the time of the year when people make plans to get better control of their finances and save money for their children’s university education or their own retirement.
However, if you’re a homeowner and you have surplus cash each month, the very best ‘investment’ you can make is in your existing bond.
“The reason for this is that the amount of interest you will save on your home loan will, in the long term, far outweigh the returns you could hope to make by choosing seemingly more exciting or adventurous investment avenues.”
With the average home price now around R900 000 and the average deposit being 18 percent, the average monthly bond repayment on a 20-year loan granted at the prime interest rate of 8.5 percent is over R6 400 a month.
Due to the way compound interest works, the home buyer who only pays the minimum amount each month will pay R800 000 in interest over the course of the loan – or almost as much as the original cost of the property.
Botha says a homeowner who pays 10 percent more than the minimum each month will pay off the loan in 16 years instead of 20, and save some R185 000 worth of interest in the process.
The represents a 50 percent return on the additional R123 000 invested in the home loan, which, he says is significantly more than you could hope to earn by investing that money in the stock market, for example, or in a money market account.
“In fact, there simply isn’t any other investment that can guarantee you this type of return over 20 years, and anything that might come close is bound to be very high-risk, while property is relatively risk-free, showing steady growth in the long-term.”
According to FNB data, even after inflation, real house prices have grown 58 percent since July 2000, despite the recession experienced in 2008/ 09.
Botha says building equity in your home by investing extra capital into the bond will give you a strong financial foundation on which to base your plans for meeting your family’s future needs.
If you are using Internet Explorer 8 or higher, please verify that your Internet Explorer compatibility view settings are not enabled.
For the best browsing experience, update to the latest Version of Internet Explorer or try out Google Chrome or Mozilla Firefox.
Please contact our Property24 Support Team for further assistance. Tel. +27 (0)861 111 724