Why: the interest payments alone will add up to just over twice the price of the house. Instead: you can pay off your mortgage years ahead of time and save thousands of rands in interest payments. Redeeming your mortgage early and paying less is easy. All you have to know is how the system works; and how to beat it.
The system: at any rate kind of mortgage you choose, you’ll have to pay interest, and build up enough capital to repay the original amount. This interest is the big addition to the cost of your home – and is where you can save the most money by making payments that reduce the capital on which future interest payments are calculated.
Beating the system: simply pay more than you have to each month. This reduces the effects of compound interest on your original loan. Write to your bank or building society, suggesting that you wish to increase your payments. Ask for this to be agreed in writing and request a breakdown of how these overpayments will affect your mortgage and what your new redemption date is. different: ask your lender to work out how much additional you will have to pay each month to reduce your mortgage term by a stated number of years. And: paying more than you have acts as an insurance policy – it allows you to miss one or two payments later when your budget may be stretched.
Example: to illustrate the effects of paying additional each month, consider this scenario based on a repayment mortgage at 15.5% interest over a 20-year term. Amount borrowed: $64,000. Contractual payment $870 per month. IF you increased month payments to $920 ($50 more per month), your revised mortgage period would be 15.08 years and you’d save $42,000. Pay $1,000 ($142 more ) a month, and the mortgage period would be 11.08 years and you’d save $73,700.