Deciding you are ready to buy a home is a thrilling life event, and officially becoming a homeowner is a buzz like no other; but once you have sealed the deal, a new journey begins.
Owning a home is a significant accomplishment and a dream for so many South Africans, but it does mean you have to rethink the way you manage your finances and the huge brick-and-mortar investment you have made.
Achieving and maintaining financial fitness as a homeowner requires careful planning, strategic budgeting, and a proactive approach to wealth management, and it does not happen overnight, says Claude McKirby, co-principal for Lew Geffen Sotheby’s International Realty in Cape Town’s Southern Suburbs.
“It’s a journey that involves informed decision-making. Regular reassessment of your goals and strategies is also key to long-term prosperity.”
He offers these five nuggets of wisdom for homeowners:
1. Critical budgeting
Budgeting is the cornerstone of financial fitness and it's crucial for homeowners to create a budget that aligns with the unique expenses associated with owning a property.
He says you should start by listing all monthly expenses, including mortgage payments, property taxes, homeowner’s insurance, and maintenance costs.
“Factor in utilities, HOA fees, and any additional home-related expenses, and differentiate between essential and discretionary spending to identify areas where you can cut back.”
It is also wise to:
- Establish an emergency fund: Homeownership often brings unexpected expenses, such as a leaking roof or malfunctioning plumbing. Having an emergency fund – into which you set aside a portion of your income – can prevent these unforeseen events from derailing your financial stability.
- Prioritise debt repayment: If you have other debts alongside your mortgage, prioritise those that carry high interest. This may include credit cards or personal loans. Reducing these high-interest debts can free up funds for other financial goals.
2. Strategies to pay off your home loan
Paying off your mortgage faster not only brings a sense of financial freedom but also saves you money in interest over the life of the loan. Consider these strategies to help you pay your bond off as quickly as possible:
- Make extra payments: Allocate additional funds to your mortgage payments whenever possible. Even a small extra amount each month can significantly reduce the total interest paid over time.
- Bi-weekly payments: Instead of making monthly payments, switch to a bi-weekly schedule. This will result in 26 half-payments, equivalent to 13 full payments per year, helping you make an extra month's payment annually.
- Refinance smartly: Explore
- Round-up payments: Rounding up your monthly mortgage payment to the nearest thousand (or even hundred) can make a substantial impact over time. It's a painless way to add a little extra to each payment.
3. Unlocking equity in your home
McKirby explains that home equity is the difference between your home's market value and the outstanding mortgage balance, and it’s a valuable asset that can be leveraged for various financial purposes. Here's how you can make the most of your home equity:
- Home equity loans and lines of credit: Tap into your home equity through loans or lines of credit for home improvements, education expenses, or debt consolidation. Be cautious and use this option wisely to avoid over-leveraging.
- Building equity through appreciation: Increase your home's value by investing in strategic improvements. Consider kitchen and bathroom renovations, landscaping enhancements, or energy-efficient upgrades. These not only improve your quality of life but also boost your property’s value.
- Avoid over-borrowing: While tapping into home equity can be advantageous, it's crucial to avoid over-borrowing. Carefully assess your financial situation and only borrow what you can comfortably repay.
4. Increase your property’s value
Boosting your property's value is a long-term investment plan that pays off when you decide to sell. Here are some tips to enhance your home's market appeal:
- Regular maintenance: Keep your home well-maintained. Attend to repairs promptly, update outdated features, and ensure the overall cleanliness and functionality of your property.
- Energy efficiency upgrades: Make your home more energy-efficient by installing solar panels, upgrading insulation, and using smart home technologies. These improvements not only save you money on utilities but also increase your home's market value.
- Kerb appeal: First impressions matter. Invest in landscaping and exterior upgrades to enhance your home's physical appearance. A well-maintained and visually appealing exterior can significantly increase property value.
5. Make wise financial choices
As a homeowner, making sound financial decisions goes beyond mortgage payments and property value, he says. Consider these principles for overall financial success:
- Realistic home improvements: Be strategic with home improvements. While enhancing your property's value is important,
- Insurance coverage: Ensure your homeowner insurance adequately covers your property and possessions. Review your policy regularly and make adjustments as needed, especially after home improvements or renovations.
- Property tax management: Understand your property tax assessment and explore opportunities for exemptions, incentives, and reductions.
- Stay informed: Keep abreast of market trends, interest rates, and changes in property values in your area. Staying informed allows you to make timely decisions that positively impact your financial well-being.
“By staying on top of your financial matters, making well-informed decisions, and leveraging your equity, you can build a solid financial foundation that not only supports your current lifestyle but also secures your financial future,” McKirby says.
For more practical ways you can pay your home loan off quicker, read this article.