Tips to make your bond repayments more affordable
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.
To help homeowners find room in their budgets, Adrian Goslett, Regional Director and CEO of 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.
If the loss is still too great…
If, after your calculations, you are still far from breaking even, here are the following alternative avenues:
- Rent out your property and consider in a more affordable residence if this is a workable option until the bond has been paid down and the market is on the up.
- If you have extra accommodation on your property such as a cottage, converted garage, or flatlet, spruce these up and rent them out for extra income.
- Cut back on unnecessary expenditures to ensure that you can repay your bond each month. Making the effort to budget and cut out certain luxuries should always be your first step when struggling with affordability – you might be in a more stable financial situation than you’d originally thought.
- In a case where you find that you regularly have some extra cash left over at the end of the month, it’s strongly advised that you increase your monthly home loan repayment so that you can pay off your bond quicker. “Property is a great investment, but you lose money if you’re forced to sell so consider the previously listed options before selling as a last resort.
Original Article: https://www.property24.com/articles/tips-to-make-your-bond-repayments-more-affordable/32637