Modern day bonds tend to have generous life spans – this to give homeowners enough time (and financial leeway) to pay them off. Depending on your home loan provider, you could have anything from 20 to 30 years to pay off your bond. You might be interested to learn that this hasn’t always been the case. Property ownership in the 1900s was a privilege reserved for the very wealthy – i.e. those individuals (or families) who could afford to pay the obligatory 50% deposit, and then settle their debt at the end of a five-year period.
During the Great Depression, however, banks and home loan providers were forced to restructure their offerings, which eventually lead to the long term bond repayment plans we know today.
Does this mean you have to use the full life period of a bond to pay it off? Absolutely not! Paying off your bond quickly decreases the total amount of interest you’ll pay on your loan and could save you thousands in the long term.
With some discipline and clever financial management, you, too, can fast-track your home loan repayments, making you debt-free much sooner, and reducing the interest you pay over the life of your home loan.
Here’s how to get it right:
- Start with a good credit score
good credit score
means that you would qualify for a lower interest rate with a lender, which means you’ll spend less on repaying the interest, and more to servicing the capital portion of your bond each month. This is why having healthy financial behaviour is so important. Before applying for a loan – or even considering breaking into the property market – do what you can to improve your credit rating.
- Pay extra
Paying extra into your bond – i.e. more than the required minimum monthly instalment – will reduce your loan’s lifespan. You can do this by paying a bigger upfront deposit or by increasing your monthly repayments. You can think of your home loan as a savings account:By moving any excess money – say your bonus, a tax rebate, salary increase, or an inheritance amount – into your home loan account, you’ll be decreasing the outstanding capital balance. If you need to draw that extra cash out of your home loan again, you can usually access this through various further lending options.
- Be consistent
Interest rates aren’t static. Over the lifespan of your home loan, your interest rate will move with changes in the repo rate, which is influenced by various factors such as inflation levels, adjustments to financial policies, and the strengthening or weakening of the economy.While you may be tempted to pay the lower minimum monthly instalment when the interest rate decreases, a healthy financial discipline would be to keep your bond repayments at the same level as before the interest rate drop – paying more than you are required to.