For most people, their biggest debt is their mortgage bond. And while it may be at the bottom of your list of debts, it is integral to your rapid debt reduction strategy.
* Pay more. Interest on home loan debt is calculated on the daily balance, so any extra money parked in your mortgage bond account will save you interest for as long as the money is there. And any lump sums paid into your home loan account can have a huge impact on your balance.
If you have a 20-year home loan, and you pay only the required monthly installments, it will take you 14 to 15 years to pay off half your loan. This is because for the first six years most of the installment is covering interest. But if you increase your installments, you can shave years off your home loan term and save yourself significant amounts in interest. For example, if you increase your bond installment by 41 percent, you will slash your home loan term in half.
* Use your bond account to save for big-ticket purchases. As long as you have the access facility on your home loan, leave extra cash in your bond account until you need it. When you draw it out, the balance will reflect accordingly, but you will have made a dent in your interest charges.
* Depending on when you are paid and when your debit orders go off your account, consider parking your salary in your bond account for a few days. This too will erode the interest owing.
* Don’t be taken in by your bank’s “generous” offer to defer your first bond payment. Pay it on the day that the bond is registered because this will save you a packet, Leonard says, shaving off six months of repayments – in Bob’s case, he’d save R27 000