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How to pay off your home loan fast and build equity

  • 15 Mar 2019

“Equity is what your property is worth to you - in other words, its market value less your home loan or mortgage,” Paul Stevens, CEO of Just Property explains. “In a normal market, the value of your property to you will increase as you pay off your bond. So that’s one of the things you should focus on now while the market is not encouraging for sellers.”

Stevens recommends evaluating your equity by asking a reputable agent to give you an idea of what your home would sell for, based on other sales in the area. Then contact your bank or bond originator to get the outstanding balance on your home loan/s. Subtract the loans from the value of the property and you have the equity. “If you’ve recently bought your home, you might find you’re actually in a situation of negative equity,” Stevens warns. “Don’t panic, use this as motivation to pay down your bond.”

What can homeowners do to improve their equity? Stevens says there is quite a lot. First of all, pay as much as you can into your home loan. He says the trick to cutting back and saving in a sustainable way that can be maintained is to put your savings away in a call account at the beginning of the month. If you have to wait up to 32 days to get your money, you will be less inclined to spend it. You’ll soon adjust to managing day-to-day with less, and you’ll establish how much you can regularly redirect to paying off your home loan quicker.

Stevens gives a practical example: imagine you have a bond of R1 million and you are paying it off at a rate of R10 000 a month at an interest rate of 10.25% over 25 years. If you pay just R250 more each month, you can reduce the bond term to 17.56 years and reduce your total loan amount by more than R240 000.

Then, and this is Stevens says is his secret weapon, choose three little luxuries to buy and enjoy, whether it’s a bag of the finest coffee, an outing for the kids, or your favourite moisturiser. “Total denial is depressing = it’s also self-defeating,” he explains. “Give yourself a few rewards for what you’re doing, but keep it to just three treats. For everything else, for the rest of the month, compare prices and only buy the cheapest. Stick to what you need and only buy specials. Remember how your grandparents lived? You can do the same: plant veggies in your garden, recycle, eat simply, make sandwiches for work, etc. We can do it too if we look at the bigger picture.”

Homeowners can also make their home pay, says Stevens. “Rent out that unused room or outbuilding, or consider cohabiting with family for a little while and put your house on Airbnb. If friends have pets that need to be looked after, consider house-sitting for them during the holidays and renting out your own home.” Put the money you make directly into your bond, keeping in mind that there will be tax implications.

Stevens says another way to increase your property’s value and equity is to renovate cleverly, in other words, you’ll be ‘manufacturing equity’. Try to see your home through someone else’s eyes. Maybe all you need to do to that 'avocado lost-in-the-70s' bathroom is paint the tiles. That knotty-pine kitchen? Have the cupboards spray painted. Could you open up and instantly modernise that rabbit warren of little rooms by knocking out one wall?

If you don’t have a granny flat you can rent out, building one may be your best bet - you increase the value of your property, and create an income stream that can go directly towards paying off your home loan quicker.

“Your agent can help you here too,” says Stevens. “He or she will know exactly what prospective buyers are looking for and what their dealbreakers are. Agents can also advise you regarding the ceiling prices that properties in your area are reaching so that you can be sure you do not overcapitalise. You will really score if you ensure that when your renovations are complete, the increased value of your property is now greater than the sum of the money you spent to improve it.”

The final options that Stevens mentions are subdivision and rezoning of existing properties. While subdividing will mean that your now-smaller property will sell for less, it can work to your advantage. It is definitely something worth considering if you have a negative-equity situation, Stevens says.

“After all, how many of us these days have the time to mow vast swathes of lawn. Many buyers will see a massive garden for the drain it is on resources and time. In such cases, you can actually make more out of your property by subdividing and selling two properties instead of one. Rezoning your property from residential to commercial can have a positive impact on its value, both from a sales and a rental. Again, speak to your agent about buyers’ expectations regarding value and erf sizes in the area. You will also, of course, need the advice of a property law professional on the regulations governing subdivisions and rezoning.”

When will the market turn? Stevens points to the 2019 forecast by property data analysts Lightstone. Paul-Roux de Kock, Analytics Director at Lightstone, predicts that “in the run up to the national elections, uncertainty will most likely increase in the property market as the political and economic environment remains tumultuous". But he also envisages a positive economic turnaround after the elections, and certainty on economic policy and land reform will stimulate positive activity in the property market, he says.

“Should the economy fundamentally strengthen and significantly boost buyer confidence in the market, it could not only end in a high road scenario but has the potential to break through this forecasted (CPI) percentage.”

“There’s good news ahead,” says Stevens. “For now, property owners should focus on improving their equity and increasing the value of their homes in anticipation of the upturn.”



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