The best way to become bond-free in 10 years

Homeowners who have just obtained a R1m home loan at the current prime interest rate of 10,7% are set to pay more than R1,44m in interest by the time they have paid off that loan in 20 years' time.

But they could save about R800 000 - or more than half that amount - if they could pay the loan off in 10 years. They would then also be able to live bond-free, which is a dream for an increasing number of homebuyers, and actually far from impossible.

At the current prime rate, the homeowner with a R1m bond could of course get it paid off in 10 years just by making an additional monthly repayment of R3481. But given the recent rapid rise in both inflation and interest rates and what this has done to household budgets, that is probably not an option for most people.

So they need to consider alternative plans for becoming "bond free" as quickly as possible, and the best of these is simply to buy a less expensive home, if t all possible. On a bond of R750 000, for example, the minimum monthly repayment to pay the home off in 20 years is around R2500 less than on a bond of R1m, while the additional monthly repayment required to pay the home off in 10 years is around R2600.

In other words, buying a cheaper property might create all the budget leeway that a homeowner needs to pay it off in 10 years - and once again save a huge amount of interest. The interest saving on a R750 000 loan would be R600 000.

And if the property then becomes too small for a growing family, the advantage is that when the owner wants to sell it and move to a bigger one, all the proceeds of the sale can be used to pay a really substantial deposit, instead of paying off a home loan balance. In this way the owners will have given themselves another opportunity to pay offtheir bond much faster than usual.

A second way for homebuyers to pay off their bonds in a much shorter time is to pay a bigger deposit at the outset, but that involves saving up 20% or 25% of the purchase price before making a purchase, and that is also really hard for most households to do in the current financial climate, especially if they are still renting. That is why buying something more affordable and starting to pay it off as rapidly as possible is preferable.  

On the other hand, buyers should always try to pay at least a small deposit, because this improves their chances of being approved for a home loan - and of being offered a preferential interest rate, which is another way to cut the repayment term of a bond.

Currently, an interest rate concession of even 0,75% on a R1m home loan would reduce the minimum monthly instalment required by around R550, and just that amount invested back into the bond would cut the total repayment period by three years.