Use interest-rate savings to pay off your home loan faster, says Seeff

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Investing in property should be at the top of your list if you are financially able to do so. Paying rent means you are paying off someone else’s property and making someone else rich. Instead, aspire to own your own home, he says.

You can do this by building up a good credit record and securing a home loan to enable you to purchase a property. Qualifying first-time buyers are also still able to secure full loan-to-value home loans, and some banks even offer costs on top of that.

Additionally, if you buy below R1.1m, there is the added benefit of no transfer duty payable on the property. Buying into a new development also offers that benefit.

For previously disadvantaged individuals with a gross monthly household income of between R3,501 and R15,000 per month, there is also a government subsidy through the Finance Linked Individual Subsidy Programme (Flisp).

It is subject to certain criteria, and is administered through the banks. It comprises a once-off payment which could be the deposit, or reduce the overall loan amount required. The subsidy is available to a purchaser who has satisfied the qualifying criteria from a recognised bank and qualifies for a home loan.

Grow, save, secure

Seeff says further that once you have acquired your own home, you must look after it so that it can accumulate further in value. It usually takes around five to seven years before you are likely to see some capital value growth and the capital amount borrowed starting to reduce.

If you are a first-time buyer, Seeff recommends that you always buy below your means and grow as your financial position improves, either by extending, or perhaps selling for a profit, and purchasing a bigger home, or in a better neighbourhood.

You should also focus on paying off your home loan faster to create more financial security. One way to do this is to not take the savings from the recent interest-rate cut and to keep your monthly repayment unchanged. Another way is to invest any spare cash into your home loan.

Paying off your home loan will not only create more security, but will save you a lot of money in the long run. By investing extra cash you could cut down the period by anything from one to five years or more, depending on how much extra you pay, and the period of your home loan.

For example, if you have a home loan of R950,000 over 20-years at the current rate of 11.5%, your monthly repayment would be around R10,131 per month. By paying just R300 extra per month, you could cut three years off the repayment period.

Spare cash in your home loan could also be used as a saving for later upgrades or extending the home. If you keep your repayment at a higher level, it will also create a financial buffer in the event that the interest rate goes up, as you would already be used to a higher repayment.