Advantages of Increasing the Payments on Your Home Loan
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Consider paying an additional amount on your home loan payments no matter how small the amount may be. A small amount each month can significantly reduce the overall amount on your home loan. Carefully go through your monthly budget and see how much you can afford to pay extra per month. Do not rely on good intentions to pay this extra amount into your home loan but increase your monthly debit order with your bank so that this new amount will automatically be deducted from your account. This amount can always be reduced at a later stage when you are going through a rough time financially, the extra payments you made up until then would have contributed to lessening your captial sum.
Increasing your monthly payments on your home loan has significant benefits for the home owner. The positive difference between the net resale value and the outstanding home loan balance will increase much faster and create some financial flexibility during those unpredictable financial hard times that pop up ever so often. Increased payments on your home loan are also a way of saving on tax as you are effectively investing your money at the current bond rate tax-free, while anyone putting the same amount on a fixed deposit, for example, will be earning up to 5% less with tax being payable on the interest received.
Although banks generally no longer apply penalties for paying off your home loan earlier than what was originally agreed upon, you should make sure that this does not apply to your bank before you decide to pay off your home loan quicker through increased monthly payments. Check your home loan agreement carefully making sure there is no clause which allows the bank to add penalty interest for increased monthly payments on your home loan
There are other ways to reduce the capital amount owed on your home loan. Instead of paying your monthly payment on the last day of the month you can move it forward a couple of days and save on interest. Also when you receive a once-off payment like for example a bonus on your salary you can pay a portion or even all of it into your home loan. If you pay an amount of R20 000 into a home loan of R200 000 that has just started, you can pay your home loan off in about 8 years less then the original time period.
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