Home Loan Tips
For most of us, our financial responsibilities are managed on the month-to-month basis. Weâ€™re so concern about clearing the next hurdle that we often fail to lift our heads up to place some thought on the future.
In this post Iâ€™ll focus on some of potential dangers of refinancing your home loan and offer you some alternative strategies to managing your mortgage.
Remember â€“ like most things – If you look after you bond it will look after you.
With regards to home loans, the problem with managing debt on a short term, month-to-month, basis is that as soon as we find a quick escape weâ€™ll grab it with both hands not paying a single thought to the future.
For instance, letâ€™s assume your have a 20-year bond and it has been going for five years with 15 years remaining. When interest rates drop you quickly move in to refinance your home loan at a lower rate with a competing mortgage provider.
Although, this is a smart move, if you choose to switch your home loan and refinance it over a 20-year period you would have added another 5 years onto the term on your bond.
Had you remained with your current bank you would have paid off your bond in 15years, since you’ve switched and extended the loan term itâ€™ll take 20 years to pay off your loan instead 15years.
So by saving R500 per month, youâ€™ve prolonged the payment requirement by 60 months. And every five years you may decide you buy a new home and you simply get another bond â€“ with a 20 year term.
You can see that by continually extending the term of your mortgage you will keep yourself in the debt trap forever.
Although I strongly support switching your mortgage for a better rate, refinancing or consolidating debt useing your mortgage account, if this is not done with care you can end up worse.
A better way to do things is to determine how long it will take to pay off your first home loan. You can use this loan term as a financial goal.
Whenever you consider refinancing or switching your bond, first consider if youâ€™ll be able to pay off your new bond by the end of that set term.
For instance, your current bond is set to be paid off in 15 years. If you do decide to move and need to apply for a new bond first consider if youâ€™ll be able to pay it off in 15 years. And if you want to consolidate you credit card debts using your home loan try to repay your debts within the period they would normally have to be paid rather than the within the term of your home loan.
This way you can ensure that youâ€™ll be bond free as your retirement draws closer while still taking advantage of the savings your bond can offer you.
If youâ€™re interested in switching, refinancing or consolidating debt, complete this short form and a Mortgage Consultant will contact you immediately to assist you. Itâ€™s free!