SOME HINTS ON HOW TO MAKE THE MOST OF YOUR MORTGAGE

by Craig Lock

Author's Note:

This short extract is a chapter in Craig Lock's booklet

'MASTER YOUR MORTGAGE*... OR IT WILL MASTER YOU'

that he wrote for South African financial institutions "many many moons" ago however, the same financial principles apply around the world).

Those were the "heady" days when he had a "proper job in

the corporate world", instead of being an "arty-farty writer type"!

* (or housing loan or bond, as it is termed in South Africa).

No-one can foretell the future, but in choosing a bond try to think of the future in your unfolding life. For example, a newly-wed couple could run trial scenarios through their heads. This could include the financial impact of the arrival of a first child in, say, three years time. It could alse be the possibility of increasing payments following a salary rise, or your partner returning to the workforce after a period of study.

Remember that YOU, the customer, are in control. The financial institution is making a profit on lending out money to you; so use your own money first, if you have it. It does not make good economic sense to have your money invested on fixed deposit at, say 12 per cent, which is equivalent to 8.4 net after tax (assuming 30 tax). After all, even though bond rates are coming down, a bond rate of 16 will mean that you are earning a negative 7.6 on your money (16-8.4).

However, always keep some of your savings available in the event of an emergency. Most importantly, ensure that you can afford the repayments. Don't go in over your head; because owning a property is not the "be-all and end-all" in your life. You will not be happy, if you are constantly worrying about making ends meet. Your repayments should not cripple your household budget and make your life a struggle. "A noose around your financial neck"! The key is to have BALANCE in your life; so that you do not spend nearly all your "small" (?) salary paying off a mansion - "cut your cloth according to your means".

We have seen that you, the customer, have a great deal of choice in structuring your bond to fit your particular circumstances. You can have one virtually "tailor-made" for you. So look carefully at what suits you best in the long run. The most important thing is FLEXIBILITY. Fortunately, most housing bonds are extremely flexible. For example, you may wish to upgrade your home at a later date. A tailored home loan can save you thousands of rand in the long term.

Although a drop in interest rates is good news for homeowners, interest rates are only one part of the home finance equation. Falling interest rates will help household budgets; but the benefits can be smaller, compared to the savings that are possible from a good and clever bond structure.

*

Flexibility: (see option 4 in previous chapter)

I would advise that the most important principle is to pay off your bond as soon as possible. If you can afford it, increasing your repayments will allow you to pre-pay your bond far quicker and possibly save you thousands of rands in interest payments. You have the chance to be bond-free far faster.

Repayment levels can be changed to meet lifestyle changes, such as the impact on household income of the arrival of children, reduncancy or a decision by a spouse (I like that word) to take time off to study - a real wish or perhaps "pipedream" these days...

You are also increasing the equity (another fancy term liked by us "economic-money types", meaning "ownership or stake) in your home, if you can pay off your bond more quickly than the standard 20 or 25 year term, usually offered by the financial institution. With the lower bond interest rates now prevalent in South Africa and around the world (thank goodness!), the opportunity exists to pay off your bond sooner by keeping your repayments at higher levels. Instead of having your payments reduced, by maintaining the same payment, you will be saving yourself money. In times of low interest rates, it may even be possible for you to increase your bond payments.

Considerable interest savings can be made by making your bond repayments (comprising interest + principal) fortnightly or four weekly, rather than monthly or quarterly, even though you might be paid monthly. Most lending institutions allow the borrower to have this facility. Your payment is half the monthly one and it is a relatively painless method of paying off your bond sooner than normal. It works like this...You are actually paying the equivalent of an additional month's repayment per year (with 26 fortnightly payments in a year).

Look at the difference these options are going to make to your personal situation, ie. what will they do for you? Ask the bank what is best.

For the majority of South Africans (and people around the globe), their home and the equity it represents is the most significant form of savings, that they will build up during their working lives; so it is very important to look carefully at all the options in financing your home.

Manage your mortgage and you will manage your financial affairs*...

* no others, please

and consequently your life

Craig Lock

Craig Lock's book 'How to Make a Million' and his other books on how to achieve financial success are available at:

or contact Craig at clock@paradise.net.nz.

The steps (practical) to achieving your wildest dreams in life: whether it's making a million dollars, living your "perfect lifestyle", or making your mark on the world...or perhaps all of them.

'MASTER YOUR MORTGAGE... OR IT WILL MASTER YOU'

is available by contacting Craig at clock@paradise.net.nz.

P.S: Don't worry about the world ending today...

it's already tomorrow in "little" scenic and tranquil

New Zealand