We are going to explore several ways in which you can save on your bond payments. Let's be clear that the house you bought and live in with your family is not an investment. In would be an investment if you are in the business of buying and selling houses.

Banks don't sell houses , they sell housing finance. i.e they sell money and charge interest on it. It's in the interest of banks for you to take 20 years to pay off your bond because that means more money for them. Let's explore how you can pay off your bond in less than 20 years and save lot of money on interest.

The South African Reserve Bank set the repo rate which is currently set at 8.25% ( Due to this inflation targeting nonsense. Text book economics). When the reserve bank increase or decrease the repo rate , banks simply make adjustments resulting in you paying more or less in your monthly bond payments. That is the prime lending rate , which is currently 11.75%. Let's look at different examples. I'll use the repo rate of 8.25% instead of the prime lending rate of 11.75% in my examples.

EXAMPLE 1

You bought a house on the 1st of  January 2023 costing R500 000 at the rate of 8.25%  to be  paid off in 20 years. Assuming that the  rate will remain the same for the next 20 years. You'll pay R4,260.33 per month. By the time you finish paying off the bond , you  would have paid a total interest of R522,478.87( over R522 thousands). In total , the house will cost you R1,022.478(Over 1 million.) in 20 years.

EXAMPLE 2

Under the same conditions as in EXAMPLE 1 , let's say the reserve bank reduce the repo rate by 100 basis points( 1%) from 8.25% to 7.25% and you opt to continue paying your bond at 8.25% , you are going to reduce the number of years paying the bond from 20 years to 17 years and 2 months and this will save you R149,233.67 in interest. This means the house will cost you R936,329.83(over R936 000) in 20 years.

EXAMPLE 3

Again , under the same conditions as in EXAMPLE 1, you decide to pay R500 extra per month in your payments( You  pay R4,760.33). This will reduce the number of years from 20 years to 15 years and 6 months , saving you R132,769.26 in interest. This means the house will cost you R982,709.52 (Over R982 000) in 20 years. NOTE that in this example you are going to save less in interest because you are paying at 8.25% instead of 7.25% but you are going to benefit in substantial reduction in the number of years. LASTLY,

EXAMPLE 4

Once again , under the same conditions as in EXAMPLE 1.Let's say you and your spouse are lucky enough to get bonuses every year and you deposit R10 000 every year into your bond account , the bond will be paid off in 13 years and you'll save R196,793.67(over R196 000) in interest. This means the house would cost you R965,655.11(over R965 000) instead of over a million and the bond will be paid off seven years earlier. 

These are several ways to pay off your bond early and save on interest or reduce the years paying off the bond.