While many South Africans dream of becoming homeowners, once the dream has been realised, the next big goal is to work towards being home loan free.
And although the familiar standard term for paying off your home loan is 20 years, Lee Mhlongo, chief executive of FNB Home Finance, says that over the years, homeowners have become more inclined to reduce the time it takes them to pay off their mortgages.
They have achieved this by “easily adjusting” some of their financial behaviours and bringing down their bond repayment terms.
“Our data shows that over the last 12 years, there’s been an increase in the number of customers paying off their home loans in just over 10 years, from an average of 7 years in 2007-2008.
“This can be attributed to the global economic turmoil which led to the beginning of the 2008 credit crunch. However, even at the height of the credit crunch (2009 to 2011) customers were still paying off their bonds within 12 years.”
This, Mhlongo says, dispels the notion that a home loan must be paid off over 20 years, although the convention is for customers to sign up for a 20-year term.
“There is clear evidence that customers are choosing to settle their home loans well before that time through well-executed money management principles. We’ve also found that homeowners with smaller loans take the longest period and that those with larger loans take the shortest time to pay-off.”
This, he explains, can generally be attributed to entry-level income earners having less disposable income to make extra payments as compared to higher income earners who have much more room to make substantial additional payments towards their home loans.
Although most home owners don’t have the extra income to go into one’s bond monthly, especially if they are first-time buyers, changes such as the recently announced interest rate cut by 25 basis points also plays a huge role in allowing customers to easily pay off their home loans earlier and save a “massive amount” in interest, provided they choose to keep their bond payments unchanged.