How much you can save just by paying R500 extra into your home loan each month

With July being national saving month in South Africa, now is a great time for young people to start saving a deposit for a home of their own.

This is according to Rudi Botha, CEO of BetterBond, who noted the positive trends in the latest Old Mutual Savings Monitor when it comes to the saving patterns of young South Africans.

The Old Mutual findings – released earlier in July – showed that 42% of the 18 to 34-year-olds surveyed in South African metro areas this year are still living with their parents or other family – compared to 49% last year.

And of the 58% who are categorised as RIFS (recently independent, financially strapped), only 43% are renting. The remainder live in homes they have bought either alone or in partnership with others.

“This accords with our own statistics, which show that despite the tough times SA consumers are currently experiencing, almost half (46%) of all the home loan applications we receive are from young people keen to buy their first homes, and that some 27% of bonds granted are going to these buyers,” said Botha.

“However, the Old Mutual survey also reveals that only half the RIFS who have purchased their own properties were able to pay a deposit, while our figures show that the average first-time buyer deposit is only around 11% of the property purchase price, compared with the 19% average paid by repeat buyers.”

Botha said that this was not really surprising considering that the average monthly income for RIFS is around R19,000 and that one in five is still financially dependent on their parents, while a third are doing a second, part-time job to make ends meet.

“The biggest monthly expenses for these consumers after accommodation are fuel/ transport; groceries and electricity, and the cost of all of these has risen substantially in recent months, so there really isn’t much income left to save for a home deposit or anything else.

“However, we are very encouraged by the finding that 63% of RIFS are active savers and that buying a home is among their top priorities.”

Those who do manage to save a substantial deposit will not be disappointed in the long run, stand to be well-rewarded for doing so, Botha said.

“Paying a deposit gives you a good chance of qualifying for an interest rate concession that can cut thousands of rand off the total cost of your new home over the life of the bond.

“In addition, you will need a smaller bond, which means lower minimum repayments and quite possibly the chance that you can pay an additional amount off every month and generate even greater savings.”

On a R1 million home loan, he noted, an interest rate concession of just 0.5% will reduce the total cost of your home over 20 years by almost R80,000.

“And if you are also able to pay an additional R500 a month off your bond, you will pay off your home in just over 17 years instead of 20, and save a further R195,000 in the process,” he said.

Read: The best areas for first-time home buyers in Joburg and Pretoria

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How much you can save just by paying R500 extra into your home loan each month