Should you pay off your home loan early?

Should you pay off your home loan early?

With Statistics South Africa (StatsSA) having revealed that a large majority of consumers have settled their bonds, many homeowners will be anticipating the prospects and viability of paying off their home loans early.

Calvin Ndlovu, Head of Operations at FNB Home Loans, says there is no correct or incorrect answer to the question on whether you should pay off your home loan early or not.

“It all depends on your individual circumstances and long-term objectives, as well as how you plan to structure your own or family’s finances,” explains Ndlovu, as he delves deeper into the advantages and disadvantages of settling a home loan early:

Advantages

• Early settlement can help you save on interest, allowing you the freedom to pursue other ventures.

• If you are approaching retirement and are planning to settle in that particular home, it is advisable to pay it off.

• You eliminate the risk of defaulting if you are self- or temporarily-employed.

• Provides a safe haven in tough economic, when there is a lot of uncertainty.

• Having more disposable income at hand can help you put more towards your short-term or retirement savings.

See how much you can save by paying extra into your bond each month.

Disadvantages

• Because a home loan typically offers you the cheapest debt available, you can save a lot of money in interest by paying off other debt first, such as personal loans, credit cards and car finance.

• If you are currently renting out the property you can save on tax as interest paid on your bond is tax deductible.

• Depending on your goals, diversifying by saving and investing the money elsewhere could be more ideal.

• You will no longer have immediate access to debt at a low interest rate which could be used for renovating, emergencies or personal cash flow management.

• As a property investor you can use the extra cash to put down a deposit on another property and still have access to funds in your bond.

• You will be liable for bond cancellation fees and may be charged additional interest if you fail to notify your bank 90 days in advance that you are planning to close your home loan account.

“Before making this important decision, seek advice from an expert or financial advisor about your personal financial goals in order to make a choice that best suits your needs,” says Ndlovu.