South African homeowners have an opportunity to pay off their bonds quicker following the recent interest rate reduction by the South African Reserve Bank (SARB).
In January, SARB lowered the repo rate by 25 basis points, reducing it from 7.75% to 7.50%, while the prime lending rate dropped from 11.25% to 11%. This marks the third rate cut in less than six months.
Bradd Bendall, National Head of Sales at BetterBond, shares practical strategies for homeowners looking to settle their bonds faster.
1. Make Extra Payments
Bendall advises homeowners to contribute more than the required monthly installment whenever possible.
“Even a small extra payment each month can significantly reduce the total interest paid over the loan term,” he explains.
For instance, before the rate cut, the monthly repayment on a R2 million bond at a prime lending rate of 11.25% was R20,985. With the new 11% rate, the repayment drops slightly. However, if homeowners continue paying the original amount, they will effectively contribute an extra R341 per month, helping to shorten the loan period.
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2. Split Your Payments
Another effective strategy is to divide the monthly bond repayment into two smaller payments. Since interest is calculated daily, this method helps reduce the overall amount of interest accrued.
For example, if your monthly bond installment is R10,000, you could arrange to pay R5,000 at the end of the month and the remaining R5,000 on the 15th of the following month. This ensures the full amount is paid within 30 days while minimizing interest charges.
3. Consider a Joint Bond
Homeownership can be made more accessible by applying for a joint bond with a partner, family member, or friend.
“Up to 12 people can co-sign a joint bond,” says Bendall, highlighting how this option can ease the financial burden and increase purchasing power.
4. Keep Your Bond Account Open
Even after settling a home loan, keeping the bond account open can be beneficial.
“Any extra funds paid into the bond can remain in an access facility, which can be used later for purchasing a second property or meeting other financial needs,” Bendall advises.
By implementing these strategies, homeowners can take full advantage of the interest rate cut and reduce their long-term debt obligations.
