How to lower your instalments on your home loan
Managing a home loan is a significant financial commitment, and finding ways to reduce monthly instalments can provide much-needed relief, especially in challenging economic times.
Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, notes that the 0.5% VAT increase proposed in the recent budget speech, alongside other changes to help fund government spending, will likely impact consumer spending.
“The proposed VAT increase will only take effect from May 2025, but it's crucial for homeowners and prospective buyers to be aware of these changes and to consider them when planning their finances. Staying informed and proactive can help mitigate the impact of such economic shifts on your home loan commitments,” he suggests.
To help homeowners find room in their budgets, RE/MAX of Southern Africa shares some strategies homeowners can consider to lower their home loan repayments.
Renegotiate Your Interest Rate
Approaching your bank to negotiate a lower interest rate can lead to reduced monthly payments. If your loan is in good standing and your property's value has increased, the bank might view you as a lower-risk borrower and offer a more favourable rate.
Extend Your Loan Term
Extending the repayment period of your home loan can decrease the monthly instalment amount – but this should only be considered as a last resort. For instance, resetting a 20-year loan back to 20 years or extending it up to 30 years spreads the debt over a longer period, reducing each payment. However, this will result in paying more interest over the life of the loan.
Generate Rental Income
Another practical way homeowners can reduce their monthly home loan instalments is by generating rental income through renting out a portion of their home. Converting a spare bedroom, cottage, or separate entrance into a rental unit provides an additional revenue stream that can significantly offset home loan payments. This not only alleviates the financial burden but can also accelerate the repayment of the loan principal, helping homeowners achieve financial freedom sooner.
Make Extra Payments
As counter-intuitive as it may sound, contributing additional funds towards your home loan can significantly reduce the principal amount, leading to lower interest charges, a shorter loan term – and a smaller instalment amount on future repayments. Paying in extra in the months where finances are available can help make the repayments more manageable in the months when finances are limited.
Whatever strategy homeowners choose to implement, the most important thing is to avoid falling behind on the home loan repayments, as even temporary setbacks can quickly escalate into serious financial difficulties.
“Missing instalments not only incurs penalties and additional interest charges but can also negatively impact one's credit score, limiting future financial opportunities. If homeowners foresee challenges in meeting their repayment obligations, they should proactively communicate with their financial institution to discuss possible solutions. Taking early action can help prevent manageable issues from spiralling into long-term financial distress, ultimately safeguarding the homeowner's property and financial stability,” says Goslett.
Original Article: https://www.property24.com/articles/how-to-lower-your-instalments-on-your-home-loan/32593