Home Loan vs Credit Card

SA Home Loans Tips: refinancing your mortgage

For many homeowners juggling their homeloan repayments and credit card debt every month can seem like an endless ask. Here one solution that you could easily use to cut your monthly debt.

Your home loan is one of your biggest financial tools available to you. If used responsibly you can turn you get you mortgage to begin working for you.

This R100 000 can then be used on anything you wish. But because the R100 000 is yours to spend as you wish most often abuse the funds on overseas tips and swanky hotels, etc.

The power and advantage of begin able to use the equity in your property is truly realized when you use the funds to pay off other high interest debts such as Credit Cards and Personal Loans.

Speaking in an interview with Classic Business Day FM, SA Home Loan CEO, Kevin Penwarden explains that one can save thousands by refinancing their home loans.

“A large number of consumers in South Africa have equity in terms of their property, but are long on short-term debt – the short-term debt I’m talking about would be things like micro-loans, credit card debts, store card debt, vehicle finance and all those sorts of things,” says Penwarden.

“Typically the interest rates on that type of debt is much higher than the lower interest rates of a home loan, so what we [SA Home Loans] would say – under certain circumstances to people, if they have such debt – is access the equity in your home loan, and pay off your short-term debt.
In other words swap the high interest rate debt for low interest rate home loan finance. Typically if you talk about credit card outstanding balances – that attracts interest of 25% to 30% and micro-loans could be upwards of 40%. Store card debts would also be around the 20s. What you are doing is swapping all of that for a home loan interest rate of around 8.5% to 9%.”

Pay off you short term debt faster and at a lower interest rate

Because you’ve paid off your high interest Credit Card, Micro-Loan or Store Loan debts with the finance you received by refinancing your home loan you’ll be able to cut down your monthly debt costs dramatically and pay off these debts faster.

Penwarden explains how you can cut your monthly debt and pay off your debts faster: “If you are servicing that over a five-year period your installments per month would be R5,500. If you switch that into an 8.5% home loan you could make savings for the family if you are cash strapped because the instalment would fall from R5,500 if it were re-financed at 8.5% over 20 years to about R1,700.”

“But what we are saying is put the R5,500 into your home loan, and instead of paying off the R200,000 over five years or 60 months you would have paid it off over 43 months, and the cash flow saving to the household is huge. On the R200,000 I’ve spoken about over 60 months the instalments would amount to about R331,000 – if you convert that to an 8.5% home loan it would cost you R237,000 over the 43 months to pay it off – so there’s a saving to the household of R94,000.”

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