Should I keep my capital in my mortgage?

Bonds, mortgages and savings. Photo: Getty Images

PERSONAL FINANCES


City Press reader Ros discovered that, despite refueling her car at her local BP garage, she was not receiving her Discovery Miles on her fuel purchases.

She used to receive Miles when filling up, so she contacted Discovery to find out why her Miles weren’t being awarded.

He was told his local BP station had been “taken over by new owners who did not join the Vitality benefits scheme”.

What many members may not realize is that the terms and conditions of a rewards program always state that it applies “at participating retailers or service stations”. .

This is especially relevant for fuel rewards, as franchise-owned garages may not be part of a rewards program.

The bank may have an agreement with a specific group of service stations such as BP, Engen or Shell. However, individual garages, if owned by a franchisee, can decide whether or not they wish to participate.

If you’re looking for fuel rewards, first check with the gas station where you’re filling up that it’s a participating garage.

ZARUIS ASK:

Can I pay my monthly installment on my vehicle in installments during the month? For example, my installment is R4,000 per month. Can I pay R2,000 in the middle of the month and the remaining R2,000 at the end of the month?

RESPONSES FROM THE MUNICIPAL PRESS:

In theory, it is possible. What is important is that payment is made in full before the full installment is due.

In other words, if your installment is due on June 30, you cannot pay R2,000 on June 30 and the remaining R2,000 in mid-July, as this will mark you as a latecomer.

However, if your installment is due on June 30 and you paid R2,000 on June 15 and then another R2,000 on June 30, you would have made the repayments on time.

What can be a challenge is knowing how the bank or finance house’s system takes this into account, so it’s important to talk to your bank first.

Some banks may consider your payment in the middle of the month as an advancement and still debit the entire agreed monthly payment at the end of the month.

Henry Botha, head of strategy and business analysis at Absa Secured Lending, explains that “if a client wishes to spread the amount of their payment throughout the month in several payments, they can do so. The client will have to define the new amount of the debit order and ensure that the remaining funds, which will be considered as an advance payment, will be reflected in the account on the monthly due date.

However, in the absence of such an agreement with the bank, a customer who does not cover the full amount due on an active debit order may see their payment profile and credit history adversely affected. We always encourage customers to speak to us when their circumstances change or when they need to make special payment arrangements.

NOMBULELO ASK:

I have a bond with Standard Bank and I have an outstanding balance of R300,000. I have 300,000 rand available, however, I want to buy land with it. Do I have to pay the deposit amount for interest and withdraw when I buy the land next year?

RESPONSES FROM THE MUNICIPAL PRESS:

First, you need to confirm with the bank that you have an access bond that allows you to withdraw prepayments. Paying the R300,000 into your existing mortgage will reduce your outstanding balance and save you around R24,720 in interest per year (assuming an interest rate of 8.25%).

That’s a big saving, and probably more than you’d save in a bank account. Plus, you pay no tax, which you might pay if you earned interest on the R300,000 in a deposit account.

However, if you make that R300,000 prepayment, which would technically settle your mortgage, you must continue to make your mortgage payments. Most banks work on a declining credit balance, so the credit facility is reduced to zero by the time the mortgage period comes to an end.

This means that in order for the full R300,000 to be available when you want to withdraw, you must continue to pay the principal amount due on the mortgage. If you do not continue with the monthly principal repayment, you will not be able to withdraw the full R300,000, as part of that sum would have been used to meet the principal repayment.


Maya Fisher-French

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