Which home loan should I pay off first?

[Maverick154]

Hi.

So, I have a basic question regarding two home loans. I would like to know which is better to pay off first.

Home Loan A:

Interest Rate: 9,35%
Loan Amount: R1 300 000
Loan Duration: 20 years
Deposit: R0
Total Interest Paid: R1 577 840

Home Loan B:

Interest Rate: 9,75%
Loan Amount: R650 000
Loan Duration: 20 years
Deposit: R0
Total Interest Paid: R 829 600

So the first and immediate though is always to pay off the loan with the highest interest rate since you want to pay less in interest. But clearly the bigger loan has more interest paid over time? Given that this is the scenario, would it be better to pay off home loan A first? Also, home loan B has a tenant in which mean that the more the interest is, the more I can claim back against tax.

Hoping some more wisdom can be shared here?

Thanks

 

[SoulTax]

Depends on what you mean by pay it off? Besides the obvious of course.

But as those are two differing amounts. The question is, do you have a lump sum to pay off immediately, or are you talking about which home loan to focus your extra payments on?

 

[gimpex]

If loan b has a tenant , and if loan a is your house pay off loan a and leave loan b as is.

 

[bromster]

Percentages aside, I would assume that the bigger loan is costing you more interest per month, so my intuition tells me to pay off the principal debt of that one first. I am sure one of the wise owls will be along shortly who can help you with the maths.

Have you considered consolidating both bonds into 1 and negotiating for a lower interest rate? If the bonds are with different banks, I am sure that either bank would be happy to steal business from their competition.

 

[mountainboy]

Pay off your primary home first

And keep the primary and investment property seperate

 

[Chevron]

So the first and immediate though is always to pay off the loan with the highest interest rate since you want to pay less in interest. But clearly the bigger loan has more interest paid over time? Given that this is the scenario, would it be better to pay off home loan A first? Also, home loan B has a tenant in which mean that the more the interest is, the more I can claim back against tax.

Hoping some more wisdom can be shared here?

Thanks

Yes, but once the smaller one is finished, you will have more cash to put into the big one.

That's why we look at percentages to make things easier.

 

[Maverick154]

Yes, but once the smaller one is finished, you will have more cash to put into the big one.

That's why we look at percentages to make things easier.

So would it not make the most sense to keep paying off the bigger one that I live in until I have paid as much extra into it as the amount of the smaller loan? At which point I then pay off the smaller loan once? In that way I win by saving on interest on the bigger loan and maximize the benefit tax wise on the interest of the smaller loan?

 

[Maverick154]

Depends on what you mean by pay it off? Besides the obvious of course.

But as those are two differing amounts. The question is, do you have a lump sum to pay off immediately, or are you talking about which home loan to focus your extra payments on?

Extra payments yeah.

 

[gimpex]

So would it not make the most sense to keep paying off the bigger one that I live in until I have paid as much extra into it as the amount of the smaller loan? At which point I then pay off the smaller loan once? In that way I win by saving on interest on the bigger loan and maximize the benefit tax wise on the interest of the smaller loan?

No. Remember that you pay income tax on your net rental ( up to 41% depending on your total income level. So the lower interest amount the more tax you pay.

Take a piece of paper and do the sums. Bond a payments should be better off.

 

[saturnz]

No. Remember that you pay income tax on your net rental ( up to 41% depending on your total income level. So the lower interest amount the more tax you pay.

Take a piece of paper and do the sums. Bond a payments should be better off.

This is correct, you want to leverage the tenanted property as much as possible for tax benefits, but this assumes you pay quite a bit of tax already for this to make a dent. So the higher your are in the tax bracket the more its in your advantage to leverage the tenanted property.