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Wednesday 26 September 2018

How One Email Saved Me R83,000

An email I would love to receive! 
I am feeling pretty chuffed with myself - not only because this post's title is probably the most click-baity one I have ever come up with, but because I recently managed to score myself around R83,000. And with only a tiny amount of effort.

In fact this was probably the single most worthwhile thing I have ever done in terms of the time and effort to reward ratio. And all while taking absolutely 0 risk!

So how did I do it?

Well it was actually pretty simple, and you can do it to:
  1. Click “New Email” in your email program of choice
  2. In the subject line, type “FIFA Lottery Winner”
  3. In the body of the email type “Greetings Beloved, The recent FIFA lottery draw….”
Haha, no I’m just messing with you. That seems like way too much effort!

The email I sent was to my bank, and it contained one simple request – I asked them to check if there was a possibility that they could reduce the interest rate on my home loan.

In the actual email to the bank, I laid on the sugar pretty thick, and included phrases like “diligent payers” and “ahead of the loan repayment schedule”, but the gist of it was “pretty please could we get a better interest rate?”

And lo and behold, within 2 days the reply came – and it was a good one!

The bank gave us two options:
  1. A small reduction in our interest rate, effective immediately. Done deal, case closed (wow that was a lot easier than I thought!)
  2. A second more intriguing option – forfeit some of the available balance in our flexi reserve, and they would give us even more of an interest rate reduction. Despite involving a little paperwork, this seemed like a no-brainer!
So I ticked the box for option 2 (which is a cooler way of saying I completed a form to reduce the flexi reserve amount and mailed it back to them. Okay, so I concede, it took more than one email in order to get the full reduction, and it was actually 2 emails which saved me the R83k. But if I admitted that from the start it would ruin my catchy headline!)

In any case, the time to reward numbers can be summarised as follows:

Total time taken +-15 Minutes
Total money saved +- R83,000

(Out of interest, the Rands to Time benefit of this little exercise would equate to a monthly salary of around R55 Million a month, if we assume an 8 hour workday and 21 working days in a month. Not bad – step aside Patrice Motsepe!)

If you are interested here is how I calculated the savings…

When I submitted the interest rate reduction request, our outstanding bond amount was around R925k (man, still a long way to go…)

We signed our bond at 0.05% below prime, which means the interest rate was 9.95%. Plugging these numbers in, with a remaining term of 18 years (216 months), equates to a monthly repayment amount of R9,219/month.

With the new rate of prime less 0.3%, the same calculation gives a result of R9,071/month - that results in a saving of R148/month. This may not seem like a lot, but over the 18 years it adds up - I have summarised below:

Interest Rate
Outstanding Balance
Monthly Payment
Months Remaining
Total Paid
 R   925 000.00
 R       9 219.00
 R     1 991 304.00
 R   925 000.00
 R       9 071.00
 R     1 959 336.00

Total Saving = R31,968

Okay, I can hear you shouting at me - didn’t I say that the email saved me R83,000? What about the other ~R50k???

Let me explain…

In my budget I have an amount of R9,219 allocated for bond repayments. But now, with this new rate, I have two options:
  • Decrease my bond repayment amount in my budget, and use the extra R148 a month for something else – I don’t know, maybe 1/6 of a DSTV subscription or something. Or….
  • Accept that I budgeted R9,219 a month for bond repayments, and this reduced interest rate and new lower monthly payment is a bonus. I can force myself to continue paying R9,219 a month by setting up an automatic monthly payment of R148 into the bond, continue as normal, and collect a gold star for being financially responsible and smart.
The decision was really tough – do I stick my gold star on my forehead or my hand?

Believe it or not, this relatively small extra monthly payment of R148 into the bond results in an additional saving of over R50,000! Fantastic!

And then there’s the added benefit of squashing the home loan a few months earlier as well. Score!

I have summarised the result below:

Interest Rate
Outstanding Balance
Monthly Payment
Extra Monthly Payment
Total Monthly Payment
Months Remaining
Total Paid
 R 925 000.00
 R 9 219.00
 R              -  
 R 9 219.00
 R  1 991 304.00
 R 925 000.00
 R 9 071.00
 R     148.00
 R 9 219.00
 R  1 908 333.00

Total Saving = R82,971

Not bad for a few minutes work!

A few things I must mention that probably helped us in the favourable outcome to our request, and which you should consider if you are thinking of getting in touch with your home loan provider.
  • I originally sent my bank an interest rate reduction request when our bond was a year old. The bank replied saying that they only reconsider interest rates after the bond is 2 years old. Not sure what the policies at the various banks and home loan providers are, but just thought I should mention that if your home loan isn’t old enough, your request may not even be considered.
  • All our bond repayments up until we made the request had been paid on time, every time. No skipped or short payments. This should be obvious, but if you are a bad payer, I doubt the bank is going to view you as a low risk client worthy of a better deal.
  • Do you remember the Reserve Bank cutting interest rates over the last year or so (prime has gone from 10.5% to 10%)? What do you suppose I did with those savings? Yup, straight back into the bond as extra payments. As a general rule, any little bonuses (such as repo rate cuts) go straight back into our bond (especially in light of the fact that home loans are pretty ugly). These extra payments resulted in us being ahead of our repayment schedule. I am pretty sure the bank gave us some extra brownie points for this – not only were we consistent and on time payers, but we went “above and beyond”.
  • If you do not ask, the answer is always no. The fact that I asked our bank, means that there was a chance we would get a better interest rate. And since asking the question has absolutely no downside, while a positive response could have a massive upside (R83k to be exact), it would be silly not to pose the question!

Sorry, Not Sorry!

Stealthy Wealth readers a smart bunch of peeps. They would gladly use any tips and tricks to reduce their debt payments and stretch their finances to the max. I am pretty sure that after reading this, everyone with a home loan is already drafting an email…

For this reason I would like to issue a formal apology to all the Banks and home loan providers in South Africa who are about to receive an onslaught of mails from the blogs readers requesting an interest rate reduction.

But you know what…

The banks should actually view this as a bunch of South Africans trying to be better with their finances, and realising the huge benefits of reducing their interest bill. I'm hoping the banks look favourably on all of you! And so I take my apology back! This is great!

Sorry, not sorry!

Here’s hoping everyone with a home loan manages to score something! Let me know how it goes…

Till next time, Stay Stealthy!
 - ~ - ~

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