Five things that may surprise you about your bond

Buying a home is a significant purchase that will most likely require some financial assistance in the form of a bond, also known as a home loan. While this process is standard practice for most buyers who are unable to pay cash for their homes, Bradd Bendall, interim CEO of BetterBond, says some things about having a bond may come as a surprise.

Here are five things that may surprise you about your bond:

1. The earlier in the month you pay your bond, the less interest you will accumulate. This can help you shave years off your bond repayment over the loan repayment period. “Another trick to save interest is to split your monthly bond instalment,” says Bendall. So, if your bond repayment is R8 000, arrange with the bank to deduct R4 000 on the last day of the month and the balance on the 15th. The full amount will be paid within a 30-day period, but the interest – which is calculated on a daily basis – will be reduced.

2. If you can pay more than the required monthly instalment on your bond, you take years off your bond repayment period. Also, by paying off the balance sooner, you will reduce your interest over the loan repayment period. On a R2 million bond, at a prime lending rate of 11.75%, a payment of R1 000 extra each month will save R564 586 in interest over the loan period, which will also be shortened by three years from 20 years to 205 months.

3. Don’t cancel your bond once you have paid the full amount. If you keep the bond open, it will still be possible to access funds if needed. Any amount you pay over and above your instalment lies in an access facility, and this can be accessed at a later stage, says Bendall. “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 need to access funds again. The bank will keep your account open unless instructed otherwise.”

4. Applying for a joint bond with a partner, family member, or friend can make home ownership more accessible. Up to 12 people can apply for a joint bond, says Bendall. “Irrespective of how many people share joint bond ownership on a property, make sure that there is a clear contract in place. This agreement should include information about the sharing of the bond and access to the bond, each person’s financial contribution and who is responsible for managing the property.

5. Working with a bond originator can mean a more favourable interest which will save you money on your monthly bond payments. “By approaching multiple banks, the bond originator can negotiate an interest rate concession because the banks compete to offer the best deal based on your buyer risk profile.” Currently, BetterBond’s average interest rate concession when applying to four banks is 0.61%. This means that you could pay up to 0.61% less than the interest rate offered by the bank. On a R2 million bond, if the bank offers a prime lending rate of 11.75%, you would pay an interest rate of 10.91%, a saving of R1 153 a month.

Bendall concludes that it may seem daunting at first, but with expert advice and some insider knowledge, you can navigate the homebuying journey knowing that you are making an informed decision.

Writer: Aithne Molotsane