A home loan is more than just a simple facility to keep up with until your property is paid off. It can also be a sophisticated money management tool.
Tommy Nel, head of credit at FNB Home Loans says a prepaid home loan facility allows you to transfer excess funds into your Home Loan, effectively saving on interest while being able to use the funds at no additional cost. He provides three different ways a home loan can benefit you:
1.Daily capitalisation of interest
Interest is calculated daily and capitalised to your home loan monthly. This means that any additional funds that are put into your home loan, even if it is for a day, will reduce the interest that you will be charged for that month. By aligning your debit order dates to fall on their salary date, you can also achieve this benefit and ensure that your most important asset is paid first.
Many consumers are not aware that credits into an account are processed before debits, meaning that you don’t have to schedule your debit orders to only run on the following day. Having your debit order run on the date of your salary saves you interest in the long run and helps you protect your credit record by ensuring your financial commitments are all settled.
2. Making full use of your prepaid funds
Prepaid funds allow you to access the power of compound interest by saving at your home loan rate of interest. The longer you leave the funds in your home loan, the more you will unleash its potential. This can help improve your financial resilience by helping you eliminate the need to use expensive unsecured debt when you are faced with unexpected expenses like your car letting you down.
You can also save to build up enough prepaid funds to allow yourself a payment holiday over those difficult holiday months such as December, January and April where there tends to be more month than moola.
3. Pay upfront costs
There are instances where paying certain costs in full, upfront for an entire year, such as in the case of insurance or school fees can help generate annualised return on such an ‘investment’ of in excess of 15%, depending on the exact terms of such offers. Using the facility linked to your home loan and regularly paying excess funds into your home loan can make this possible.
Source: FNB. Image: Pixabay