What are the advantages of trying to pay your mortgage bond earlier off

Lake Properties                        Lake Properties

Lake Properties                    Lake Properties

Why paying your bond early helps (thoroughly explained)

1) The big, obvious win — you pay much less interest

Mortgages are amortised so early payments cover mostly interest; as the balance drops more of each payment reduces capital. Every rand you pay early reduces the base on which future interest is calculated — that’s a compounding win.

Example (real numbers so you can feel the scale):

• Loan: R1,500,000
• Interest: 9% p.a. (compounded monthly)
• Term: 20 years (240 months)

Monthly payment for this loan = R13,495.89.
Total paid over 20 years = R3,239,013.44.
Total interest paid if you make only required payments = R1,739,013.44.

Now two common “early pay” strategies and what they actually achieve:

A — Add R2,000 extra each month to the standard payment:

• New payoff time ≈ 174 months (14.5 years) instead of 240 months — you finish ~5.5 years sooner.
• Total interest paid ≈ R1,196,284.74.
• Interest saved ≈ R542,728.70.

B — Make a R200,000 lump prepayment after 5 years:

• You’ll shorten the overall term to about 193 months (≈16.1 years) — save 47 months (~3.9 years).
• Total interest paid ≈ R1,104,706.64.
• Interest saved ≈ R634,306.80.

(Those examples show how both small regular extras and a single lump sum can cut huge sums from interest.)

2) You gain flexibility & optionality faster

Faster equity growth gives you options:

• Refinance at better rates or borrow a smaller amount if you need a loan later.
• Sell with a larger cash buffer.
• Use equity to invest or fund life events — but only if you want to, not because you’re forced to.

3) Lower sensitivity to rate rises and income shocks

If rates rise (or your bond has a variable rate), a smaller outstanding balance reduces how much a rate increase raises your monthly interest or shortens the margin for error when your income drops.

4) Better retirement and life planning

No bond payment in retirement = predictable, lower fixed expenses and less stress on pension income. That makes retirement planning simpler and often more secure.

5) Psychological and lifestyle value

There’s real peace-of-mind value in owning your home sooner — less daily stress, fewer decisions constrained by a monthly bond, and a stronger sense of financial freedom. That’s intangible but important.

Important trade-offs and checks (don’t skip these)

Paying the bond early isn’t always automatically the best move — you must compare the opportunity cost:

1. Prepayment penalties and admin rules

   • Some bonds have fees or limits on how much you can repay early, or require admin to apply extras to principal. Always confirm the lender’s terms.

2. Opportunity cost of other investments

   • If you can plausibly earn a higher after-tax, after-fees return by investing (or by paying off higher-interest debt first), investing that money might make more financial sense than prepaying the bond.
   • A simple rule of thumb: if your mortgage interest rate is higher than the after-tax return you reasonably expect from alternate investments, prepaying is attractive.

3. Liquidity / emergency fund

   • Don’t deplete your emergency savings. Bonds are long-term — if you drain liquid cash to prepay and then need money, you may have to borrow at higher rates.

4. Other debts

   • Prioritise paying off higher-interest unsecured debts (credit cards, personal loans) before accelerating a low-rate mortgage.

5. Tax considerations / investment property

   • Tax rules differ by country. In many places, interest on owner-occupied mortgages is not tax-deductible but interest on investment properties is. Check local tax rules before making decisions dependent on tax deductions.

6. If you’re fixed-rate

   • Fixed-rate bonds sometimes have stronger penalties for early repayment — check whether prepaying is cheap or expensive for your contract.

Practical tactics — how to prepay smartly

• Confirm with your bond originator:

  1. Are there prepayment penalties?
  2. Will extra payments be applied to principal (not simply held as credit against future instalments)?
  3. Can you make partial prepayments, and how often?

• Tactics you can use

  • Add a small extra each month (e.g., R1,000–R3,000) — consistent and painless.
  • Make bi-weekly / fortnightly payments if your bank allows it (it’s a small effective extra each year).
  • Use windfalls (bonuses, tax refunds, inheritance) as lump-sum prepayments — these have a big impact.
  • Round up your monthly payment (e.g., always pay R14,000 instead of R13,495.89).
  • Split windfalls — e.g., 60% to bond, 40% to investments — to get the best of both worlds.

• Record-keeping

  • Keep receipts and check annual statements to ensure extra amounts are reducing principal. Mistakes happen; check.

A short decision checklist

• Do you have a 3–6 month emergency fund? ✅
• Do you have higher-interest debts to clear first? ✅
• Have you compared the mortgage rate to expected after-tax investment returns? ✅
• Have you confirmed prepayment rules with your lender? ✅

If you can answer “yes” to these and you’re comfortable with the reduced liquidity, accelerating the bond often wins financially and emotionally.

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Lake Properties Pro-Tip:
Before you throw money at your bond, call your bond originator and ask two direct questions: (1) “Are there any prepayment penalties or annual caps on extra payments?” and (2) “Will extra payments go straight to principal, and can I redraw on them later if needed?” Then use windfalls (bonuses, tax refunds) to cut principal, keep a 3–6 month emergency fund untouched, and consider splitting other surplus cash between an extra bond payment and a higher-yield investment — that way you save interest and keep upside potential.

If you know of anyone who is thinking of selling or buying property,please call me 

Russell 

Lake Properties 

083 624 7129 

www.lakeproperties.co.za info@lakeproperties.co.za 

Lake Properties                       Lake Properties