Ideally you should always buy property cash.
Yes, I realise that it’s not realistic but that should be your aim.
In my mind, it would be better to borrow the money from your friends than have a bond.
While we all know that there are costs for transferring a property into your name, few people know that there are bond costs too, which essentially doubles the cost of putting property into your name.
Taking a 100 percent bond increases the risk of the bank lending you the money, so they tend to charge you maximum rates while if you were to put down a reasonable 20 percent bond you would get at least one percent lower bond rate.
Your bond costs would also be lower because they are based on the value of the bond that you take out.
My three aims would be to:
- Pay off my bond as quickly as possible and if I had a 100 percent loan, renegotiate for a lower interest rate when my bond goes down to 80 percent of the original loan.
- Pay extra off my bond every month to bring it down more quickly. Make it a bond to always get your balance down as much as possible. Remember paying an extra R100 pm month means that your bond balance has come down by R1 200 per annum. Not much hey, but it actually is more than that because you will be paying less interest each month, about R7 per month but it all accumulates. Try R200 per month.
- Pay 10 percent of my annual increase of my bond. You won’t notice it but your bond will. If you are being paid R12 000 per month and get a 10 percent increase, you would pay off R120 per month more off your bond. That would double the extra that you are paying off each year. Alternatively, pay 10 percent off any bonus that I get. An extra R120 for the month. Not much but it really makes a difference.
Your aim should be to be bond-free.
Do you think that there is a difference in the lifestyle of a person that owns his or her own home bond-free and the one that has a R1 million outstanding bond?
The first has an extra R7 500 per month tax fee to spend and peace of mind.
Just following these simple rules could halve the time that it takes you to pay off your bond. Worth every penny.
- Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.