If a home loan is paid off over the normal 20-year term, the interest that is paid to a financial institution is often more than the capital borrowed, says Meyer de Waal, a conveyancing attorney in Cape Town, who made a study of home loan repayments, how to save thousands of Rands on home loan repayments and FLISP subsidies.
Says de Waal:” If the buyer is a first time home owner, then such home owner can save thousands of Rands, if the proceeds of a FLISP policy are paid into the home loan account, reducing the capital as a “once-off” payment.
Not many first-time home owners are aware that they can apply retrospectively for a FLISP subsidy, where they have never applied for the subsidy previously.”
TOTAL PAYMENT OVER 20 YEARS
For example, if a home loan of R605 480.00 is paid back over a 20-year term at the current prime lending rate of 10.5%, the interest to be paid back will add an extra R845 317.00 to the total home loan repayment.
This will mean that the homeowner will end up paying back R1 450 79.00 to the bank over the 20-year repayment term, where the home loan interest rate of 10.5%.
If the interest rate is 11.2%, then an extra amount of R914 275 will be payable on the home loan, and the total payment would be R1 519 755.00.
HOW A FIRST TIME HOME OWNER CAN SAVE THOUSANDS OF RANDS
We recently assisted Tumelo, a new home owner who initially did not apply for a FLISP subsidy before taking transfer of his new home.
Tumelo took transfer of is new home in March 2022.
The home loan registered was for the amount of R605 480.00, which means that the total repayment, with capital and interest at the prime lending rate will be R1 519 755.00 over the 20 year repayment term, as the bank approved a 11.2% home loan interest rate.
Only in late in 2022 Tumelo realize that FLISP subsidies were available for existing home owners as well.
Tumelo was assisted and guided to process his FLISP application by our FLISP consultants.
In January 2023, he received the good news that an amount of R89 187,00 will be paid back into his home loan.
The advice to him is to continue with the current home loan repayment and pay off the home loan as quickly as possible and shave off 6 years and 8 months on the 20-year repayment term. By doing so, Tumelo will save up to R420 000.00.
Here are the calculations:
The first is a calculation done one how much he will pay without the FLISP subsidy.
The home loan amount is R605 480.00, paid over 20 years and at the rate of 11.2%
We then work in the FLISP subsidy of R89 187.00 that will be paid into the home loan:
Then we calculate the timing, considering the various dates of the registration of transfer and the actual date when the FLISP subsidy will be paid into the home loan.
We then calculate the savings of the FLISP subsidy of R89 187.00 paid into the home loan, where the monthly home loan repayment remains at R6 332.32 per month.
Then we calculate the new repayment term that was reduced to 13 years and 4 months:
The actual savings on a home loan with a capital value of R605 480.00 is that can be saved if the FLISP subsidy is paid into the home loan as a once-off payment and the home owner continues to pay the current home loan monthly premium is an amount of R420 934.00.
Herewith the amount saved:
Says De Waal “Many new first time home owners are not aware that they can save thousands of Rands on their home loans if they apply for a retrospective FLISP subsidy”.
To qualify for such a subsidy, the home owner must be a South African citizen, with financial dependents and must have not owned a property before. Home owners whose combined gross household income is between R3 501 – R22 000.00 per month can apply.
As from the 1st of April 2022, the FLISP application process was de-linked from only finance approve through a traditional home loan, and now any home buyer/owner can qualify for a first-time buyer FLISP subsidy if they have financial assistance to buy a property in the form of:
SAVE EVEN MORE – RENEGOTIATE YOUR HIGH INTEREST RATE TO A LOWER RATE
Many home owners are trapped in their high interest rates when their home loans were granted.
Their financial situation may have improved and they do not know that they can approach their own bank to consider a reduction in their interest rate for their home loan.
Take the example of Tumelo, whose home loan was approved at a rate of 11,2 %, which is higher than the current prime lending rate of 10,5 %.
Based on the interest rate of 11.2 %, Tumelo will pay R1 519 755.00 over a period of 20 years to settle the bond.
One the FLISP subsidy of R89 187.00 is paid into the home loan of Tumelo, his financial situation will change.
The risk for the bank now also changed and reduced and with the FLISP deposit paid into the home loan, the bank ought to consider a reduction in the home loan interest rate for the client.
This seldom happens, as the home owners are not aware they can ask the bank for such reduction.
Herewith the possible savings, if the interest rate can be reduced to the current prime lending rate of 10.5%
This means the following savings:
Total amount saved = R68 958.00
The opportunity to renegotiate a lower interest rate is open and available for all home owners, and they must make use of such opportunity as the ever increasing interest rates are adding more pressure to the budgets of home owners.
If your own bank do not want to reduce your current high interest rate and your financial situation and credit score and the value of your property improved, then consider switching your home loan to another bank that may grant you a lower home loan rate to save thousands of Rands.
DO YOUR OWN CALCULATIONS
To calculate your own Flisp subsidy – click on the FLISP Subsidy Calculator
WHAT HOME LOAN CAN I QUALIFY FOR NOW?
Home owners can do a quick online check if they can qualify for a higher home loan, go to https://mybondfitness.co.za for a free online assessment.
Watch a video on how to check your credit score and do your affordability check online: My Bond Fitness Video
SWITCH YOUR HOME LOAN?
Need assistance to switch your home loan? Register here
Click here for an online credit check and affordability calculation, all in one. You will receive a certificate used to reflect the possible home loan that you may qualify for.
Watch the interview on SABC 1 Yilungelo Lakho with Meyer de Waal, discussing this topic.
Meyer de Waal
12 January 2023
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)