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What you need to qualify for a bond

Firstly, let’s state that the whole object of taking a bond is to be able to become the owner of a property that you don’t have the cash to buy.

Thereafter, the aim should be to pay your bond off in the shortest possible time — you really don’t want a bond.

To get a bond you need to have a good credit record as banks will not lend to people who don’t pay their clothing accounts or rental.

Nothing less than a C on your credit record will allow you to get a bond.

The bigger you are seen as a risk the less likely you are to get a loan to buy a property, so keep your nose clean as far as your finances are concerned.

You will need to show the bank that you can pay back the loan too.

So, it is important to have a job that earns you enough to pay back what you borrow.

They call this clean money and by that they mean your gross salary less your deductions for tax, pension, life policies, medical aid, living expenses, clothing accounts, food etc.

What is left is what you can afford to take a bond for.

Bond payments are about R7.75 per month per R1 000 that you borrow so a bond of R1 000 000 should cost you about R7 750 per month, more or less.

A bond of R500 000 would cost you about R3 900 per month.

So, if you are renting for R5 000 per month, it could well pay you to buy instead.

When taking a bond they don’t take your rental as an expense because you are going to replace it with the bond that you use to buy your home.

Remember what I said at the start – you don’t want a bond!

So, your aim must always be to pay off your bond as quickly as possible.

Pay more each month, pay lump sums off the capital when you get a bonus, and pay more each month when you get a pay rise.

That way your bond will be paid off much sooner and you will avoid paying interest as far as possible.

But what happens when you fail to service your bond after losing your job – through retrenchment or end of contract etc?

This is always a difficult situation so be upfront and honest with your bank or body corporate.

While they may help you for a while don’t expect them to do this for very long.

Sh*t happens – that’s life and you have to be prepared for it.

As I have always said, pay off your bond as quickly as possible by paying more, paying lump sums and paying extra as you get pay rises.

If you do this you will to an extent be years in advance on your bond and the banks will cut you leeway on your bond payments.

Ideally you will have paid off your bond and own nothing so you will have nothing to worry about.

The same applies to your levy: did you pay extra each month so that you were a substantial amount in credit?

If you cannot pay then, it’s not a problem until the credit runs out.

When owning property there are risks.

Just like it has happened to me that the tenant did not pay rent, but I still have to pay my levy and bond.

That’s life.

I am giving the tenant a hard time to get out – they cannot expect me to provide them with a place to stay – that’s not how it works.

Think about taking out insurance.

For around R15 per month you can insure against not having an income and not being able to pay your bond.

If you really cannot pay, and it is unlikely that you are going to get a job then you should really consider selling – you can always buy later.

Don’t leave it too long or your arrears on the levy and bond can eat up any money you might get from the sale.

Whatever you do, don’t be an ostrich and put your head in the sand.

  • Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant.

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