Quit smoking – and cut years off your home loan

There are many reasons to stop smoking - or better still, never to start - but one of the best is that the money you save could help you pay off your bond several years earlier.

According to Rudi Botha, CEO of SA's leading bond originator BetterBond*, consumers should use World No Tobacco Day on 31 May to take stock of their cigarette consumption and the opportunity to rather pay an additional amount off their home loan every month.

"If the average price of a pack of 20 cigarettes is R40 and you smoke even 10 cigarettes a day, your habit is costing you R600 a month - or more than R7200 a year. If you were to put that money towards your home loan, it could reduce the time it takes to pay off your home by several years - and save you many thousands of Rands in interest."

At the current prime rate of 10,25%, the minimum monthly repayment to pay off a R1m bond in 20 years is just over R9800, he notes, "but consumers who give up smoking and add their R600 worth of cigarette money to this minimum every month stand to pay off their homes in less than 17 years - and save more than R255 000 worth of interest.

"And we think that's a pretty strong incentive to quit smoking - quite apart from the health benefits." (To work out how much you could save by increasing your monthly bond repayment, see www.betterbond.co.za/calculators/additional-payment.)

Alternatively, says Botha, money not spent on smoking could become the means by which to lower or eliminate any other debt - or to save a deposit for a first home purchase.

"BetterBond statistics show that the average age of first-time home buyers is 34, which means that South Africans are renting or sharing homes for much longer than they used to before taking their first step up the property ladder. This is often a question of affordability more than anything else, and that can always be improved by saving a deposit.

"For example, paying a 10% deposit on a home priced at R1m will lower your home loan requirement to R900 000, and at an interest rate of 10,25% that will drop your minimum bond repayment by around R1000 a month. This will make it considerably easier to qualify for a home loan - and increase the chance that you will be able to negotiate an interest rate concession that generates even more savings on the total cost of your home."

He says the average variation between the best and worst interest rates offered on the bond applications that BetterBond submits to the banks is currently 0,5%, and that on a bond of R900 000, this translates into potential interest savings of more than R70 000 over the lifetime of the bond - in addition to the monthly bond instalment savings." (To see what sort of savings you could achieve by paying a deposit, see www.betterbond.co.za/calculators/home-loan-repayment.)