South African consumers were relieved following the interest rate cut in January, now homeowners can use this opportunity to pay off the bonds faster.

The South African Reserve Bank's (Sarb) lowering of the interest rate in January by 25 basis points (bps) was the third time that the rate cut was in less than six months.

The repo rate was cut by 25 bps and will fall from 7.75% to 7.50%. This means the prime lending rate will also drop from 11.25% to 11%.

Bradd Bendall, National Head of Sales, BetterBond shares tips to help homeowners pay off their bonds much faster.

Paying a little extra

Bendall said that paying a bit extra into their bonds each month, depending on financial means of the homeowner, can have positive outcomes over the long-term.

“Paying more on your monthly bond amount could significantly impact the amount of interest payable over the loan period,” Bendall said.

“Anything extra that is paid into your bond will reduce the balance, and the interest payable over the loan repayment period.”

For example:

The monthly repayments on a R2 million bond, at a prime lending rate of 11.25% before the January cut would be R20,985.

If you continue to pay this amount, at the current prime lending rate of 11.00%, this means you'll be paying R341 extra each month on your bond.

By paying extra into your bond each month, you could finish repaying your bond much sooner, according to Bendall.

Splitting your payments

You could also split your monthly bond instalment because the earlier in the month you pay your bond, the less interest you will accumulate, according to Bendall.

For example:

If your bond repayment is R10,000, arrange with the bank to deduct R5,000 on the last day of the month and the balance on the 15th.

The full amount will be paid within a 30-day period, but the interest, which is calculated on a daily basis will be reduced.

Joint bond

Bendall said that another option is to share the financial load by applying for a joint bond with a partner, family member or friend to make homeownership more accessible.

“Up to 12 people can apply for a joint bond,” Bendall said.

As a final piece of advice, Bendall said that homeowners should keep their bond account open once you have paid off your bond.

“Any amount over the instalment lies in an access facility that can be used later, to buy a second property or for other financial needs,” Bendall said.

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