Author: Sukayna Bassier
You receive an email with the subject, “Your application for a Mortgage loan has been approved”, your heart is racing and your smile is brighter than the Sun during December. This is the moment you have been waiting for, what you have been working towards, you scream out loud “I am going to be a home owner”. But after consulting your broker to confirm repayment amount, interest rates as well as term of Mortgage Loan – that brightness starts to dim.
You stare at the quotation before you and the only thing that catches your attention is the term of the loan, most mortgage loans are for a period of 240 months or 20years – you in your late 30s and realise that you will be closing this account right before you reach retirement age. You also look at the estimate amount you will be repaying the bank after the end of the term of your mortgage loan and you start to wonder whether this is all worth it. Truth is buying a house is one of the biggest financial commitments we can make, however there are ways to make your mortgage loan work for you and pay it up sooner.
Here is how you can do that:
1. Use a Flexi Reserve or Access Bond Facility
Most financial institutions offer this facility, the facility allows you to deposit any additional funds you may have at any point in time. The advantage of this facility is that you can access these funds at any point in time. However, if you chose not to access it you can ask your financial institution to ‘capitalise the funds you have saved in your flexi – reserve and transfer it to your mortgage loan’. By doing this will be decreasing the term of your mortgage loan and pay it up a lot sooner.
2. Restructure your repayment plan
You have received a promotion at work and your monthly remuneration has increased significantly and you do not want to make use of the flexi – reserve facility, you could ask your financial institution to reassess the provisions of your mortgage loan, i.e., getting them to increase your monthly instalment and subsequently decreasing the term of the loan.
3. Increase your Credit Rating
Your credit score is one of the main considerations financial institutions take into account when determining your interest rate as it determines your risk worthiness.
Interest rates are calculated using the prime interest rate (set by the South African Reserve Bank) plus the amount added by the financial institution, the amount that the bank adds is linked to your risk worthiness determined by your credit score.
By settling debt, you will be showing the bank that they are your main financial obligation and as such you should be rewarded with a lower interest rate. Should you not be able to settle the debt, it is of utmost importance that you ensure timeous payment of credit agreements. Lower interest rates means that the accumulative amount you will be paying to the financial institution at the end of the term of your mortgage loan is a lot less.
A mortgage loan should not be seen as a burden but rather the key to becoming more financially organised and can be a useful tool in managing your affairs if utilised to its full potential. The above are but mere suggestions for more information and guidelines on making your specific mortgage loan work for you, please consult your financial institution and enquire what they have to offer you.