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The Pitfalls of Debt Consolidation and Avoiding them    

Pay Early & Multiple Payments

  • If you do decide to consolidate your debt into your bond, you should next try to repay your loan as soon as possible to maximize savings.
  • Interest is calculated on a daily basis and if your bond payment is due the 30th of every month, make your bond payments five days earlier each month and save in the long term or split your payment amount between the 15th and the 30th and you save even more. If you make your bond at the 15th instead of at the 30th, you are saving 15 days worth of interest.
  • Maintain your original payments even if the interest rate drops. This way you can pay off your bond in record time and save on interest, without any affect on your current budget.
  • Up the Repayments of your home loan. By paying more into your mortgage loan you can gain significant savings on interest and reduce the term of the home loan. For example: if you should increase your payments with an extra R400 per month on a bond of R400 000, you can reduce your bond term with up to 5 years.
  • Depending on your financial circumstances and what you can afford to pay into your home loan, a 20-year agreement could turn into full ownership within few years by cutting monthly living costs, saving on interest costs and increasing the amount that you get out should you ever consider to sell.

Borrow Wisely

  • Expensive debt is a quick way to lose money.
  • Most mortgage bonds enable you to repay more than your set repayments and to borrow against what you have paid.
  • This is useful not only to borrow money for other things at short notice, but also to use as a savings account.
  • The effective interest you receive is much greater and there are no additional costs. Say, for instance, you need to put away money to pay school fees or provisional tax. “Save” the money in your mortgage bond until you need it, rather than in a low-interest bank savings account.
  • Link your cheque and bond account. Pay your salary into your cheque account and since interest in calculated daily, this will reduce your loan amount and hence the interest you will pay.
  • Deposit your bonus into your bond and you will be surprised at the amounts you will be saving. If you pay for example a lump sum of R40 000 at the end of the first year on a bond of R500 000 @ 12% you can reduce your bond repayments with almost 7 years!

Manage Your Mortgage

  • Ensure that your pay your bond on a regular basis. Do not miss any payments since this will increase your interest liability. Arrears are costly and should be avoided at all times.
  • If you decide to cancel your bond study your loan contract and see if contains any penalty fees. If it does give at least 3 month’s notice. Some institutions can charge you a penalty fee that is equal to three months interest.
  • Think carefully before you decide to make use of interest only home loans. Although this will be affordable in the short term, contemplate the effect this will have on you and your family over the long term.
  • Interest rates been on the rise steadily, which will result in your interest payments being more that before. You could end up in a worse financial position than before.
  • Additionally you will remain in debt for much longer by delaying the repayment of the capital debt.
  • Remember there is nothing like a free holiday. Some institutions are offering payment holidays when you register a new mortgage bond with them. You can delay the payment of your first installment up to a certain number of days. In the mean time you are accumulating extra days of interest
  • Always make use of the services of a bond broker to help you avoid any potential pitfalls.
For more debt related articles see below:

-Types of Debt Consolidation Loans
-Debt Consolidation Advantages
-Debt Free Living
-Lowering Your Debt For Life
-Are your debts keeping you awake at night?
-Is Debt Consolidation for You?
-Good Debt vs Bad Debt

To apply for a debt consolidation loan you will have to fill out a short application form. You will then receive a FREE quote from well established, nationally recognized lenders. You do not need to decide now whether the debt consolidation loan is for you.

Just apply and compare the repayments to your current situation. There is no obligation on your part. If you decide that it is not for you, you simply do not have to accept the offer. You have nothing to lose and everything to gain.

20 Second Application



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