Purchasing a house is a big investment that will most likely need financial support in the form of a mortgage bond, often known as a home loan.
While this method is typical practice for most home buyers who are unable to pay cash for their houses, there are several aspects of having a bond that may surprise you.
This is according to the interim chief executive of BetterBond, Bradd Bendall, a company which specializes in bond origination with the major retail banks in South Africa.
Bendall has shared five things about a bond that first time home buyers and even season homeowners may not know.
The earlier you pay, the better
The earlier in the month you pay your bond, the less interest it may accumulate.
This can help you save years on your bond repayments over the loan repayment duration.
“Another trick to save interest is to split your monthly bond instalment,” said Bendall.
So, if your bond repayment is R8,000 for example, arrange with your bank to debit R4,000 on the last day of the month and the other in the middle of the month. The complete amount will be paid within 30 days, meeting your obligation with the bank, however the daily interest rate will decrease faster due to the compound interest effect.
Pay more to shed years off your bond
If you can pay more than the required monthly instalment on your bond, do so, it can take years off your repayment period.
For instance, on a R2 million bond with a prime lending rate of 11.75%, an extra monthly payment of R1 000 will save R564,586 in interest and shorten the loan period by three years, from 20 years to just over 17 years.
Don’t cancel your bond once it is paid up
If you keep the bond open, you will still be able to access funds as and when they are needed. Any sum you pay above and above your payment lies in an access facility, which you can access at a later date.
“Many homeowners use their primary residence to access funds so that they can buy their second property. There is no real benefit in cancelling your bond, unless you are selling the property, or you are absolutely sure that you will not be needing to access funds again. The bank will keep your account open unless instructed otherwise,” Bendall explained.
Consider a joint bond
Applying for a joint bond with a partner, family member or friend can make home ownership more accessible.
Up to 12 persons can apply for a joint bond. Regardless of how many persons have joint bond ownership of a property, ensure that a clear contract is in place.
This agreement should include details concerning the sharing and access to the bond, each person’s financial commitment, and who is responsible for managing the property.
Bond originators can save you some pennies
Working with a bond originator can mean a more favourable interest.
This will save you money on your monthly bond payments. The bond originator’s function is to purchase a bond on your behalf.
They effectively function as a go-between for you and the banks, supporting you in completing a single piece of documentation and then submitting the house loan application to all of the main banks on your behalf.
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