YOUR MONEY: A lump sum payment into my new home loan, or a monthly top-up?
This week we look at what to do if you have a new home loan and some spare cash
07 December 2023 - 05:00
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If you have credit life cover, check on the age cut-off, notes the writer. Picture: 123RF
Question:
I recently bought a house and am due to make the first payment in December. I would like to know which is better: paying a big lump sum in January or paying extra every month?
— A Fat Wallet Facebook community member
Answer:
A large lump sum in January would have a bigger impact on reducing the loan amount than paying a monthly instalment.
The question is: what else could you do with that lump sum instead of paying down the bond?
Assuming your bond is being charged at an interest rate of 11.75%, you would effectively earn 11.75% — a great return and, importantly, tax free.
I would add that even small things like paying your home loan on the day you receive your salary rather than on the first of the month saves some money over the term of the loan.
Also remember to increase your monthly repayments every year as you get a salary increase (if you’re fortunate enough to get one). Basically, any extra money added to the home loan reduces the principal amount owed, and hence the loan duration, which will save you a lot over the long term.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
READER QUESTION OF THE WEEK
YOUR MONEY: A lump sum payment into my new home loan, or a monthly top-up?
This week we look at what to do if you have a new home loan and some spare cash
Question:
I recently bought a house and am due to make the first payment in December. I would like to know which is better: paying a big lump sum in January or paying extra every month?
— A Fat Wallet Facebook community member
Answer:
A large lump sum in January would have a bigger impact on reducing the loan amount than paying a monthly instalment.
The question is: what else could you do with that lump sum instead of paying down the bond?
Assuming your bond is being charged at an interest rate of 11.75%, you would effectively earn 11.75% — a great return and, importantly, tax free.
I would add that even small things like paying your home loan on the day you receive your salary rather than on the first of the month saves some money over the term of the loan.
Also remember to increase your monthly repayments every year as you get a salary increase (if you’re fortunate enough to get one). Basically, any extra money added to the home loan reduces the principal amount owed, and hence the loan duration, which will save you a lot over the long term.
Your Money team
We want to hear from you! Send questions to yourmoney@fm.co.za
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