YOUR MONEY: A lump sum payment into my new home loan, or a monthly top-up?

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