Feb 13 2008
Home Loan Debt
Do you consider your mortgage a bad debt, or a good debt?
When the bank advances you money that is not yours to buy a property, one would consider the debt to be good debt. The property is after all an asset escalating in value, and in essence has not cost you any money.
How you then manage that debt determines what it will ultimately cost you.
A mismanaged bond will soon feel like a bad debt when you struggle to make up payments you missed, or when you keep borrowing against the loan for ‘bad debt’ items.
To reduce the cost of your debt, and save money, consider this:-
* paying your first payment early, would alone reduce your repayment period by some 16 months and save you about R104 000 on a R500 000 bond;
* paying an additional R100 each month on the same loan would reduce your repayment period by 18 months and save you some R95 000;
* paying your 1st payment early and R100 additional per month would reduce your repayment period by 31 months (2.5 years) and save you in the region of R180 000; and
* for the bold — paying double your installment each month would reduce the period to only 54 months (less than 5 years) and save you a hefty R857 000 in interest.
(Picture from unknown publication of the Weekend Argus – Money Section)