How investing in your own home gives you great returns

How investing in your own home gives you great returns

Looking for the best return on your money? Paying just a little extra into your home loan every month is one of the best investments you can make.

At the start of the new financial year, many people are making plans to get better control of their finances and reviewing their insurance, investment and savings plans.

“Everyone’s looking for the best return on their money, whether they are saving for a holiday, planning a legacy for their children or investing for retirement,” says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest bond originator.

“And the truth is that if you are a homeowner and have some money to save each month, one of the very best investments you can make is to pay that money into your existing home loan account to shorten the lifespan of the loan.

“The reason is that the amount of interest you will save on your home loan by doing this will in most cases far outweigh the returns you could hope to make by choosing seemingly more exciting or adventurous investment avenues.”

He says the latest BetterLife statistics indicate that the average home price in SA is now R1,1m, and that the average deposit being paid is 22% of that, leaving some R858 000 to be financed by way of a home loan.

“At the standard home loan interest rate of 10,5%, that would put the average monthly bond repayment on a 20-year loan at just under R8 600. And, thanks to the way compound interest works, the homeowner who pays only this minimum amount each month will pay almost R1,2m in interest over the life of the loan – or more than the original cost of the property.

“On the other hand, the homeowner who pays just 10% more than the minimum each month – or an additional R860 in the example above - will pay off the loan in 15 years and three months instead of 20 years – and save some R334 000 worth of interest in the process.

“That represents a return of more than 100% on the additional R158 000 invested in the home loan, and there really aren’t many other investments that can guarantee you that kind of return - and at the same time deliver a fully-paid-for property.”

Rademeyer says it is worth remembering that the property itself will also have appreciated in value while you were paying it off, meaning that you stand to make a further return on your overall investment if you sell it.

“For example, our statistics show that the average home price at the end of February this year was almost 20% higher than the average just three years ago, at the end of February 2014, while the latest FNB figures show a 297% increase in the average house price over the past 16 years.”

Article from privateproperty