Homeowners struggling against the rising cost of living may not know this, but it is possible to reduce the amount you have to pay on your home loan each month.
That’s right, saving money on your home loan repayment is not only reserved for buyers who are able to shop around for the best interest rates and can benefit from the competition between banks
The succession of interest rate hikes has had a “big impact” on existing homeowners who are now paying more on their home loans than they have in the past three years; thankfully though, there are “several ways” for existing homeowners to reduce the financial burden of a home loan in this tough economic time, says Rhys Dyer, chief executive of ooba Home Loans.
These include renegotiating your interest rate or repayment terms on your home loan, applying for a payment holiday, or even applying for the Government’s First Home Finance subsidy (formerly Flisp) after buying your home.
Five ways homeowners can reduce their home loan instalments
1. Renegotiate the interest rate on your home loan
First and foremost, Dyer says, homeowners have the option to renegotiate the interest rate on their existing home loan by approaching their banks and making such an application.
“This is provided that your home loan is in good standing – paid on time each month. The bank will also be more inclined to agree to a lower interest rate if the value of your property, compared to the original loan amount borrowed, has increased, meaning that the bank's loan to value (LTV) ratio and the associated risk has reduced.”
2. Renegotiate your home loan repayment term
Homeowners can also apply for an extension on the remaining term of their home loan to reduce their monthly bond repayments.
“For instance, if you initially applied for a home loan over 20 years, you can request that the home loan term be reset back to 20 years or even extended over a longer period of up to 30 years,” he says.
However, the homeowner will need to agree to the updated terms and conditions and will be subject to a higher total interest charged over the extended loan term.
3. Apply for a payment holiday
While payment holidays were widely requested during the Covid-19 pandemic and have their financial drawbacks in the long-term, Dyer says it is an avenue that struggling homeowners can take for short-term relief.
“In this case, you should contact your Bank to request a payment holiday or to pay a reduced loan instalment for a short period of time. These payments, and the interest accumulated, will need to be repaid over an agreed number of months following the expiration of the payment holiday period.”
4. Take advantage of the government’s First Home Finance subsidy
Formerly known as the Finance Linked Individual Subsidy Programme (Flisp), the First Home Finance programme is a government project that works to close the gap in the home buying market.
The First Home Finance programme is a housing subsidy for help first-time homebuyers step onto the property ladder. If your household income is R3,501 to R22, 000 per month and you meet all the qualifying criteria – including being a South African citizen or legal permanent resident – you may use this subsidy to purchase your first home.
Homeowners who meet the criteria but never applied for or received the subsidy when buying their home can also apply to receive it retrospectively under certain conditions.
5. Deposit extra money into your home loan account
Homeowners who have money set aside may consider taking a percentage of emergency savings and depositing these into their bonds, Dyer adds.
“Paying more than your regular monthly home loan repayment each month will reduce the total interest charged in the long-term. This is also a great way to enjoy tax-free savings.”
Echoing this, Bradd Bendall, head of sales at BetterBond, says homeowners can pay extra into their bonds and “shave years off” of their repayment periods. For example, on a R2m bond at the current prime lending rate of 11.75 percent, a payment of R1,000 extra a month (on top of your instalment of R21,674) could reduce your loan period by almost three years and save you R564,490 in interest.
Once your home is paid off, Adrian Goslett, regional director and chief executive of RE/MAX Southern Africa, says your monthly expenses obviously decrease, which means that more money is freed up to deposit into things such as retirement savings or other debt repayments.
“Another great advantage is that you also minimise your financial risk and when you do eventually sell, you’ll make a greater ROI (return on investment) on the sale if you have less outstanding on the home loan.”
In addition, if you have an access bond facility, you can treat your home loan account as a savings account by depositing any extra cash they might have into them.
“You can then later access this capital through your home loan if an emergency arises, he explains.
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