Debt is looked at in two different ways in modern society. Either as a trap or as a tool, it really comes down to what you are using the credit for. If you are using the credit to better yourself or to buy assets it may be an option, but funding excessive spending on credit is never a good idea.
How Home Mortgages Work?
The first step to understand how refinancing works is to understand how traditional mortgages work. There are a few key components that make up a mortgage.
A home mortgage or bond is an asset backed loan that helps you purchase a house. Because of the loan being backed by a property, it often receives a lower interest rate and a longer repayment term when compared to unsecured loans.
Three main components in a home mortgage:
- Capital Owed – Capital owed is the amount of money you owe from your initial loan before interest and fees. If you were to take out a R1 000 000 bond, your capital owed would start at R1 000 000 and decrease from there.
- Interest Owed – This amount is the amount of money you owe over time as interest. This amount will decrease as you make repayments and can decrease more if you make early or lump sum payments. If your bond has a variable interest rate, the interest owed can change with the interest rate changes.
- Equity Available – This is the amount of money you have paid off in your bond. If we use the R1 000 000 example, after a number of years you have paid the amount of capital owed down to R800 000. This means you equity in your bond in R200 000. While this may not be directly available to you, it means that you owe less than your home is worth and have equity available.
How Refinancing Works?
Over time, the value of your house can increase. This means that you have much more equity available in your home than before. Refinancing takes advantage of this extra equity by using it to consolidate all your other debt into your bond. This allows you to take advantage of the long payment period and low interest rates.
Using this system, Bond Optimiser has saved their clients up to R7 000 a month on debt repayments.
The process starts with talking with one of the Bond Optimiser assessors who will assess your situation and identify your individual financial situation and needs. They will calculate your equity available and negotiate with your credits on your behalf.
If you are looking to get a handle on your debt, speak to a Bond Optimiser Assessor today!
