Beware of longer term home loans

Isaac Moledi

Isaac Moledi

Be very careful when you negotiate the extension of your bond repayment to 30 years instead of the standard 20 years - you could be coughing up huge extra amounts in interest over the longer term.

Mary-Jane Lefevre, call centre manager at MortgageSA, said many home buyers are so focused on the lower monthly payments on longer-term bonds that they often overlook the full costs of extra interest payments.

For example, on a R700000 bond with a repayment period of 30 years at a prime rate of 12,5percent, Lefevre said the home buyer could end up paying an extra R780700.

"Though the monthly repayments are R482 less, the additional 10-year term adds a whopping chunk of interest charges to the amount," she said.

Lefevre said the 30-year bonds were mostly extended to purchases in the R600000 to R850000 range.

Lefevre cautioned that anyone considering a longer-term home loan repayment should fully understand the implications.

"If an extended term on a home loan is the only way you can get into the property market, then it is worth considering.

"However, we would advise buyers to stress test their budgets and talk to a reputable mortgage originator to ensure they have researched all the options available to them in assessing a 20- and 30-year term," she said.

One such option, Lefevre said, was for the originator to negotiate the best terms possible on a 20-year bond.

If a longer term loan was still required, a credible mortgage originator could advise on how best to manage this term, she said. The loan could be restructured at a later stage to a lesser term.

"If you plan properly and set achievable financial goals, you might find you are able to pay more towards your monthly instalment and shorten the term of payment," she said.