Interest rates are back at levels that I saw when I joined the property industry in 1975 – that’s a long time ago.
Since then, rates have been as high as 25.5 percent.
While interest rates are likely to rise at some stage in the next couple of years, the rise is likely to be slow and low.
By that I mean when interest rate increases come, they are likely to be little by little, maybe only a 0.25 percent rise at a time and only once or twice a year.
That still gives you an excellent opportunity to buy your own home as currently owning a home at these low rates is much the same cost as renting one.
Why would you want to pay off somebody else’s bond?
If you follow my suggested bond interest saving and capital payment model, by the time interest rates start rising, you will already be well ahead on your bond payments and in effect won’t be affected by these expected small increases.
Firstly, negotiate with your bond provider for the best interest – just negotiating an extra 0.5 percent will help you in the long run.
Secondly, pay off whatever you can as soon as you can.
In other words, pay off more than the compulsory bond payment.
If your bond payment is R5 000 per month then pay R5 500.
That means that you will be paying off an extra R500 off your bond each and every month.
At the end of the year it will be R6 000 lower – plus the interest that you have saved.
When you get a bonus, pay off a percentage of your bonus off your bond.
Get a R12 000 birthday bond and pay off R1 200.
When you get a pay rise, pay 10 percent of your pay rise each month.
A R1 000 pay rise may mean only R100 per month extra.
But add all these up and you have paid R8 400 extra in a year plus the interest on that amount at seven percent or a further R500, amounting to a total of R8 900 off your bond.
If they do add 0.5 percent to your bond it would only go up by R150 per month.
While your extra payments would mean that you are already five years in advance on your payment schedule.
During the year you will be paying in 10 percent of your bonus and yet 10 percent of your rental increase and will always be ahead of the curve.
Nice, hey!
- 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.