Which one gives you more bang for your buck?
Ever wondered why a 20-year property loan might be a better fit for you than a 30-year one? Well, we’re here to share some professional insights on the better fit:
- You will own the property outright in less time, this is important if you’re planning to retire in the next 20-25 years and would like to do so without a mortgage hanging over your head.
- In principle you are making larger payments, which means you’re building home equity at a quicker pace. This can be beneficial if you plan to sell your home in the future as you’ll walk away with a larger profit.
- Financial Institutions typically offer lower interest rates for 20-year property loans compared to 30-year loans and this equals significant savings over time.
As they say, “the proof is in the pudding”, observe the case study calculated on the present prime interest rate of 11.75 % of the country.
| TERM: PROPERTY LOAN | 20- YEARS | 30 – YEARS |
| LOAN AMOUNT | R2 000 000.00 | R2 000 000.00 |
| TOTAL PAYMENTS | 240 | 360 |
| INSTALMENT PER MONTH | Instalment per month: R21 674.00 | Instalment per month: R20 188.00 |
| TOTAL INTEREST | R3 201 895.00 | R5 268 327.00 |
| TOTAL REPAYABLE | R5 201 895.00 | R7 268 327 |
The divergence amounts to R2 066 432, which represents the potential value of an additional investment property that could have been acquired during this period.
The gap in monthly payments is around R1500.00, which just so happens to match the average South African family’s monthly fast-food budget. Without delving into every detail, let’s just say that streamlining your non-essential expenditures could be the secret sauce to securing a 20-year home loan and even adding an extra investment property to your asset portfolio.
Opting for a 20-year home loan over a 30-year one is like choosing a prime location for your property. Yes, it might require a bit more investment upfront, but the benefits – like higher property value and quicker equity – come in much sooner! And just as owning a prime property allows you to invest in more lucrative real estate opportunities, paying off your home loan earlier opens the door to owning that second property sooner. So, in the world of ‘Property Play’, the early investor gets the prime property.
While a 20-year home loan can have its perks, it’s crucial to remember that everyone’s financial situation and life goals differ. Always ensure your financial decisions align with your personal circumstances and long-term objectives. In ‘Property Play’, the best strategy is the one tailored to you!
Remember, the right property attorney can be a great asset in your property investment journey!
Select our firm, we extend bespoke services in property law and conveyancing. Comprehensive details can be found at the provided reference link: https://debruynlegal.co.za/property-law/
Author: Aniche Heine (Consultant: Attorney & Conveyancer)
aniche[at]debruynlegal.co.za