So your bond has been approved and you are weeks away from owning your new home!

So your bond has been approved and you are weeks away from owning your new home! Now is the time to educate yourself about how to make your home loan work for you. 

The money you pay back on your bond is essentially divided into two when it reaches the bank – the largest portion is paid towards the interest on your loan and the smallest portion is paid towards reducing the capital amount – which is the principal amount you borrowed from your bank.

In other words, in the first few years of paying back your home loan, you are mostly paying off interest while paying much less on your capital amount. To complicate matters, in South Africa interest on your home loan is charged on a daily basis, so the amount you owe increases daily.

There are ways to take control of your repayments literally from the first day your home is registered, however.

•    The first and easiest way to make a positive impact on your home loan is to pay your first installment on the very first day that your bond is registered. This will reduce your         capital amount immediately and will reduce the total interest payable over the term of the loan.
•    Increasing your monthly repayment will mean that you pay less interest over the term of your loan and as a result you will reduce the term of your bond too.
•    If you are in a position to make other additional payments into your bond in the first few years, you can shave thousands off your loan amount. So where possible, pay any             bonuses or thirteenth cheques into your home loan account and use any salary increases to increase your monthly repayment.
•    When interest rates drop, keep your installments at the higher rate. Contact your home loan provider and ask them to not adjust your repayment to a lower rate. An                       alternative is to arrange for a fixed installment or to apply for a fixed interest rate contract.
•    An arrangement can also be made with your bank to split your payment into two – one payment in the middle of the month and one at month-end. This will allow you to                save on daily interest.

Be savvy and wise – by implementing these tips, you can get on top of the compound interest cycle and save yourself a lot of money while taking years off your home loan repayment period.