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Make your bond work for you

When deciding to buy a home, there are a few things a purchaser will have to consider. Apart from how much he has saved to put down as a deposit, is the affordability once the interest has been added to the purchase amount of the property he has 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 are up to 30 years, although most buyers usually choose a 20 year repayment period. The quicker the bond is repaid, the more that is saved on interest and years spent paying into one’s bond, said Bauer.
 
Banks are negotiable on interest rates (to a point), and a good mortgage originator will help find the best deal for the buyer. The larger the deposit the purchaser has to put down, the better the negotiating power he has, said Bauer.
 
If a buyer opts for a fixed interest rate, the banks will fix it for a few years – up to five years possibly depending on the bank, and can be reapplied for – but they will probably charge a slight premium higher than the going rate at the time of application. While this may seem counterproductive to a buyer, 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 a person has a young family or is just establishing themselves in their careers, because the stress of an unpredictable interest rate is alleviated.
 
One can also reduce the interest payable as well as the repayment period by paying extra in each month.  For example, if a buyer pays an extra R500 per month, he can on a bond of R1 million at 10.5% interest over 20 years, save up to R240 000 and the property will be paid off approximately three years earlier.  If the buyer chooses to pay an extra R1 000 per month, he 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 in order to do so. The earlier the bond is repaid, the earlier one can invest in other property options or shares, to grow a nest egg for the future, said Bauer. 


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