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Feb 13 2008

Home Loan Debt

Posted in Property Finance, Property Matters


Good Debt? Bad 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.

Bond Repayment Graph

(Picture from unknown publication of the Weekend Argus – Money Section)

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3 Replies to “Home Loan Debt”

  1. Tim Ramsey says:

    I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.

    Tim Ramsey

  2. Thanks for this info! A bond does feel like debt as I am paying something off, but yes, the fact that it is the only thing I know which grows in value it is a different kind of debt repayment. I have always believed that property is the best investment because of this fact!

    These tips will now make it easier for me to “play” with my bond and I will be able to save allot!

    Thank you!

  3. jimma says:

    If credit cards are the greatest source of bad debt, auto loans are a close second. You are upside down on the loan the second you drive off the dealership’s lot and it’s downhill from there. Too many people shrug off a car payment as a necessary evil.

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