Taking out a mortgage bond to buy a home is considered “good debt” as you are buying an asset that will appreciate in value.
There are several things you can do to make sure you make your money work for you and get the most benefit out of your home loan.
Nico Louis-Minnie, the head of investments at Liberty, says if you are in your early twenties you should think about saving as much as possible from your first pay cheque until you purchase your first home so that you have a significant deposit. “Don’t use the deposit to buy a more expensive home, but rather to reduce your monthly repayments,” he says.
For example, a home loan calculator on the SA Home Loans website shows that if you buy a home for R1 million at an interest rate of 9.1 percent and your deposit is R100 000, your monthly instalment will be R8 156. But if you double your deposit to R200 000, your instalment will drop to R6 892.
Louis-Minnie points out that American billionaire and investment guru Warren Buffett still lives in the house he bought more than five decades ago for US$31 500.
He says to make the most of your money, you should use your annual bonuses and salary increases to boost what you pay into your home loan. In this way, you can try to pay off your home in less than the usual period of a loan, which is 20 years. This will reduce the interest you pay on your loan and you will then also free up some of your income, which you can add to your retirement savings.
“Avoid the temptation to tap into the equity you have built into your home by drawing down on an access bond or buying a more expensive home,” he says.
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