Cost-cutting is on many people’s minds as prices rise and affordability becomes stretched. And while potential homeowners continue to benefit from attractive interest rates due to heightened competition between the banks, what are the cost-saving options available to existing homeowners?
The succession of interest rate hikes has had a big impact on existing homeowners who are now paying more on their home loan than they have in the past three years.
In search of some much-needed reprieve, there are several ways for existing homeowners to reduce the financial burden of a home loan in tough economic times.
Ways to reduce the blow:
Renegotiate the interest rate on your home loan
First and foremost, homeowners have the option to renegotiate the interest rate on their existing home loan.
An existing homeowner can approach their bank to renegotiate the interest rate that they are currently being charged on their home loan. This is provided that your home loan is in good standing (paid on time each month). The bank will also be more inclined to agree to a lower interest rate if the value of your property (compared with the original loan amount borrowed) has increased, meaning that the bank’s loan to value (LTV) ratio and the associated risk has reduced.
Renegotiate the repayment term on your home loan
Homeowners can also approach their bank to apply for an extension on the remaining term of their home loan to reduce their monthly bond repayments. For instance, if you initially applied for a home loan over 20 years, you can request that the home loan term be reset back to 20 years or even extended over a longer period of up to 30 years.
Here, the homeowner will need to agree to the updated terms and conditions and will be subject to a higher total interest charged over the extended loan term.
Apply for a payment holiday
Payment holidays were widely requested during the Covid-19 pandemic and while they have their financial drawbacks in the long-term, it is an avenue that homeowners can take for short-term relief. In this case, homeowners should contact their banks to request a payment holiday or to pay a reduced loan instalment for a short period of time.
These payments, and the interest accumulated, will need to be repaid over an agreed number of months following the expiration of the payment holiday period.
Take advantage of FLISP
Introduced in 2012, the Finance Linked Individual Subsidy Programme (FLISP) is a government project that works to close the gap in the home buying market. South African first-time homebuyers with either a single or joint gross monthly household income of between R3 501 and R22 000 can qualify for FLISP. Subsidies range from R30 000 to R130 505.
Existing homeowners who meet the criteria but have never previously applied or received the subsidy, are still eligible to receive it retrospectively, provided that the application is made within 12 months of bond registration. Upon approval, the subsidy is paid to your home loan account; it reduces the bank’s risk and enables you to re-negotiate the interest rate on your home loan.
Homeowners can also determine their eligibility through a prequalification.
Savings to soften the blow
Those who have money set aside may consider taking a percentage of emergency savings and depositing these into your bond. Paying more than your regular monthly home loan repayment each month will reduce the total interest charged in the long-term. This is also a great way to enjoy tax-free savings.
Another key area where one could cut back is in the home maintenance area. It’s advised that you look at your home maintenance expenditure to determine key areas where you could reduce spend. These could include shopping around for more competitive homeowners insurance, armed response services, home fibre and internet services providers, garden services etc.
There are various financing options available to homeowners. Hope is not lost and it’s important that you educate yourself and work with a reputable team of experts in making your final decision.
Rhys Dyer is CEO of ooba Home Loans.
