WINDHOEK – “We are always being urged to save more, and with the recent tax break, where better to save than your home bond,” says Thomas Slabbert, the Head of Home Loans at FNB Namibia.
According to Slabbert homeowners are lucky in that they always have the option of saving by using any spare cash to reduce the capital portion of their home loan – and achieving really worthwhile payoffs for doing so. “By reducing the capital portion of your home loan, you will also reduce the interest you must pay every month and the overall repayment period – in other words, you will invoke the power of compound interest in your favour,” he said.
FNB Namibia advises that if a client for example pays an additional N$200 per month on a N$1m bond it will cut 14 months off the 20-year repayment period and save the customer N$99 867,54 worth of interest – not a bad return on the N$45 200 that the customer will have ‘invested’. An additional N$400 a month reduces 27 months off a 20-year payment and generates a saving of around N$183 827,63 as opposed to the N$85 200 the customer will have invested.
“You can speed things up even more – and increase your returns – by making lump-sum additional payments into your bond account whenever you get extra money such as an annual or performance bonus, an inheritance or a gift. Some people even use their earnings from a part-time job to pay their bond off faster and save more interest. What is more, the ‘returns’ you make on money invested into your home loan are entirely tax free, and the current standard home loan base rate of 10.25 percent is a lot better than what is being offered on most savings accounts,” said Slabbert.
He further said that while some other types of investments may offer a better return, they also usually involve taking a far higher risk – which is not what most people want to do with their savings – and an increased tax liability. “It is important to note that when homeowners pay their bonds off faster they are simultaneously increasing their own equity in their properties, which will put them in a better position when they decide to sell and should be accessible in an emergency so that they don’t need to apply for personal loans or overdrafts,” he said.
Finally, paying off a bond faster will also help people make better financial plans for retirement. “A paid-off home is one of the best preparations you can make because it will enable you to live rent or bond-free in an asset that is increasing in value at a time when inflation is likely to be eroding the value and buying power of whatever income you have,” he said.
FNB Namibia offers the FNB FlexiBond account, which gives transactional account holders the flexibility of accessing surplus funds from their home loan after completion. This means customers can enjoy the benefit of easily accessing funds at their convenience and saving on service charges when engaging transfers from their home loan to their transactional account.
By Staff Reporter