According the National Credit Act in South Africa, consumers are free to settle their credit agreements before the end of the loan term. When it comes to home loans however, this differs.
Paying your home loan off faster is something you could do if you want to become debt-free sooner. By making the necessary arrangements with your lending institution, there is nothing stopping you from paying off your mortgage within a period of 5 years.
With home loans, consumers are free to pay in excess of their contractual repayment, provided it is paid off before the 20 or 30 year period. The bond will need to reassess the Loan term reduction using the normal credit and affordability criteria to ensure that consumers can afford to pay off the mortgage over the shorter period.
Paying your home loan off faster means that you will have to give a three month notice period. Most banking institutions stipulate in their home loan agreements that customers intending to cancel their mortgage are required to give a 90 day notice of their intention to do so.
What are the advantages?
- You get peace of mind
- You may want to ensure that your bond is paid off before you retire
- You can avoid having to pay any more interest
- You can free up some extra cash in your budget
What are the disadvantages?
- You have other debt that accrues at a higher interest rate
- You don’t have an emergency fund
Tips on paying your home loan off faster:
- Make bi-monthly payments
- Make extra lump sum payments
- Use your bond as your savings account
- Make your payments earlier in the month
- Put down a deposit that is as large as possible
- Negotiate the lowest possible interest rate on your bond
- Chip away at the interest rates some more
