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Be careful when using bond to pay off debt

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Home loan interest rates have fallen considerably but homeowners should be cautious about using the equity in their properties to consolidate debt, says Gerhard Kotzé, managing director of RealNet.

Those who do this will gain a real advantage only if they keep their remaining home loan term the same as before and if they use some of the money they save on other instalments to pay an additional amount off their bond every month.

“They need to be careful that they don’t end up paying additional interest on their bond over the longer term that adds up to much more than the original saving derived from paying off these debts,” Kotzé says.

However, if they can divert at least half of what they are saving on other instalments to increase their home loan repayments, they could end up paying it off much sooner than expected and could save many thousands of rand in interest.

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