Make your bond work for you

When deciding to buy a home, there several things a to consider.

Apart from how much you have saved to put down as a deposit, is the affordability once the interest has been added to the purchase amount of the property you have in mind, says Michael Bauer, managing director of estate agency SAProperty.com.

There are various ways mortgage bonds are structured and these should be considered first, before applying for one, as this affects the interest charged.

Mortgage bond repayment periods can be up to 30 years, although most buyers usually choose a 20 year repayment period. The quicker the bond is repaid, the more you save on interest and years spent paying into your bond, says Bauer.

“Banks are negotiable on interest rates (to a point), and a good mortgage originator will help find the best deal for you. The larger the deposit you can put down, the better the negotiating power.”

If you opt for a fixed interest rate, the banks will fix it for a few years – up to five years possibly depending on the bank, and it can be reapplied for – but banks will probably charge a slight premium higher than the going rate at the time of application.

“While this may seem counterproductive, it is actually the opposite, as a fixed interest rate creates financial stability and budget certainty for a period – in knowing exactly what your bond repayment will be each month for a fixed period of time. This is particularly useful if you have a young family or are just establishing yourself in your career, because the stress of an unpredictable interest rate is alleviated.”

You can also reduce the interest payable as well as the repayment period by paying extra in each month.  For example, if you pay an extra R500 a month, on a bond of R1 million at 10.5% interest over 20 years, you can save up to R240 000 and the property will be paid off about three years earlier. If you choose to pay an extra R1 000 a month, you will save over R380 000 and pay the bond off around five years earlier.

“The best strategy to use when buying a home is to decide to pay as much as possible each month and economise on luxury items to do so. The earlier your bond is repaid, the earlier you can invest in other property options or shares, to grow a nest egg for the future,” says Bauer.

Call Michael Bauer on 021 427 1600 or email michael@saproperty.com.