Money Matters: Use your home loan account to save

There are different ways to save money, but the most unconventional or perhaps least considered is saving through your home loan account.

Kathu Ramoliko, Head of the Gold Sub-Segment at FNB, says “A home loan is a long-term financial commitment which takes years to repay, however, it can also be used as a savings tool over the life of the loan. In other words, as a homebuyer, the loan provider can structure your home loan in way that allows you to pay extra towards the loan. The benefit is that you can save on interest and the additional money can be accessed whenever required.

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It also means that if you need access to the cash you can withdraw the additional funds you have in the loan account. By adding your savings into your bond, you reduce the interest being charged, as every bit extra goes towards paying off a part of the loan, therefore the lower the loan amount the lower the interest.

For example, if you have a bond of R700,000 over 20 years (240 months) with an interest rate of 10%. Your repayment every month would be R 6,755. If you pay an additional R500 per month, the loan will be paid off 43 months earlier.

“In principle, there’s nothing wrong with paying off your home loan over the 20-year time frame. However, if you are able to pay a little extra you can shorten the repayment time frame and reduce interest repayments and ultimately save,” concludes Ramoliko.

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South Coast Herald

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