Securing a mortgage is a significant milestone, but simply letting the monthly payments run their course for the next few decades may not be the most financially savvy approach.
With some strategic planning, you can pay off your mortgage much sooner, potentially saving you a substantial sum of money that can be directed towards your children’s education or wealth creation for your family.
- Lump Sums
Any lump sum payments you can make towards your home loan can significantly reduce the time it takes to pay it off. Rather than spending your annual bonus money or other unexpected funds on non-essential items, consider paying a portion of these funds directly into your bond account.
Especially in the early years of your bond, most of your payments will go towards interest, while the principal amount remains relatively unchanged. Any extra payments you make above the minimum will directly reduce the principal balance you owe, helping you pay off the bond faster.
- Higher Repayments
One effective strategy is to arrange to pay your bond at a rate that’s 2% to 3% higher than the minimum monthly repayment. This small adjustment can save you money and reduce the home loan period. Even if interest rates decrease – which we are anticipating will start to happen mid next year , maintaining your repayment at the same level can be beneficial.
In the event of an interest rate hike, you won’t have to scramble to find additional funds to meet your loan obligations. Whenever possible, consider increasing your payment amount to keep it comfortably above the minimum.
- Frequent Payments
Rather than making one substantial monthly payment, consider splitting your payment into two and pay every 2 weeks. This simple adjustment effectively means you’ll be making more monthly payments annually instead of the usual 12. This approach can decrease you home loan period significantly. Furthermore, because interest on home loans is calculated daily, making earlier payments in the month can also save you money on interest for those days.
- Utilize Your Savings Account
Consider your access bond account as an efficient savings vehicle. Banks usually charge higher interest rates to borrowers compared to what they pay to savers. By depositing your savings into your mortgage account, you essentially earn the same interest rate that the bank charges you on your loan, resulting in positive interest on your investment. This can offer a much higher return compared to traditional savings accounts.
- Debt Consolidation
Consolidating all your debts under your home loan can be a smart financial move. With a current prime lending rate, your mortgage typically carries a lower interest rate (around 12.50%) compared to credit cards or personal loans, which often have interest rates exceeding 20%.
By consolidating your debts into your mortgage, you can effectively lower your overall interest burden, allowing you to allocate the savings towards paying off your mortgage more rapidly. However, exercise caution to avoid accumulating additional credit card debt.
In conclusion, paying off your mortgage sooner is not only a wise financial move but can also free up resources for other important financial goals. By implementing these strategies, you can accelerate your mortgage payoff and secure a brighter financial future for yourself and your family.
For enquiries Text, Call or email #yourhomegirl Justina Hamupembe
Cell: +264812726001
Email: justina@chili.com.na
