Have your home loan work for you
Most consumers are well prepared for the fact that buying a house will constitute the largest amount of money they will ever borrow in their personal capacity.
Fewer, however, recognise the opportunity to capitalise on the low borrowing costs associated with a home loan, and use this as a flexible money-management tool.
“Unlike with a personal loan or credit card, financial institutions have a way of recouping some of their losses if you fail to service your home loan,” explains FNB Namibia’s head of home loans, Brian Katjaerua.
“This essentially means that the home loan’s interest rates are almost without exception the cheapest for of finance that consumers can access.”
Besides a unique structure that allows customers to borrow large sums of money and pay them back over a long period of time, home loans also offer additional benefits.
In the case of FNB for example, the lender offers a tool known as ‘further lending’, where the borrower unlocks further funds using their home loan as equity.
Equity here refers to the difference between the value of the property and what the lender still owes on that property.
“By registering a bond in the Deeds Office that is higher than the one you need to facilitate the initial purchase of your property, you have access to credit on short notice and would not have to again go through the fairly lengthy process of registering a further bond in the Deeds Office,” the bank executive says.
“Because the home loan product is structured in a way that you only pay interest on the outstanding balance, all extra funds you pay into your home loan effectively earn you a return at your home loan rate of interest.”
A final point to keep in mind is that any home loan instalment would always be lower than that on an unsecured loan instalment by virtue of the longer term available for repayment, even when borrowed at the same interest rate.
“As long as you don’t finance items such as holidays, a car or school fees over the full 240-month period of the home loan, and as long as you commit to paying off these debts over shorter periods, and where possible look to paying more than minimum required payments the bank expects of you, you will certainly receive the benefit of the savings in interest through the power of our further lending facility on home loans,” Katjaerua says.
DENVER ISAACS
Fewer, however, recognise the opportunity to capitalise on the low borrowing costs associated with a home loan, and use this as a flexible money-management tool.
“Unlike with a personal loan or credit card, financial institutions have a way of recouping some of their losses if you fail to service your home loan,” explains FNB Namibia’s head of home loans, Brian Katjaerua.
“This essentially means that the home loan’s interest rates are almost without exception the cheapest for of finance that consumers can access.”
Besides a unique structure that allows customers to borrow large sums of money and pay them back over a long period of time, home loans also offer additional benefits.
In the case of FNB for example, the lender offers a tool known as ‘further lending’, where the borrower unlocks further funds using their home loan as equity.
Equity here refers to the difference between the value of the property and what the lender still owes on that property.
“By registering a bond in the Deeds Office that is higher than the one you need to facilitate the initial purchase of your property, you have access to credit on short notice and would not have to again go through the fairly lengthy process of registering a further bond in the Deeds Office,” the bank executive says.
“Because the home loan product is structured in a way that you only pay interest on the outstanding balance, all extra funds you pay into your home loan effectively earn you a return at your home loan rate of interest.”
A final point to keep in mind is that any home loan instalment would always be lower than that on an unsecured loan instalment by virtue of the longer term available for repayment, even when borrowed at the same interest rate.
“As long as you don’t finance items such as holidays, a car or school fees over the full 240-month period of the home loan, and as long as you commit to paying off these debts over shorter periods, and where possible look to paying more than minimum required payments the bank expects of you, you will certainly receive the benefit of the savings in interest through the power of our further lending facility on home loans,” Katjaerua says.
DENVER ISAACS
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