Why it is wise to repay your bond as fast as possible
Most homeowners’ annual earnings are increasing year-on-year ahead of the current inflation rate, due to improved conditions of South Africa’s economy.
Middle class savings should be rising by about 10% per year, but instead, consumer spending is rising, which in turn is pushing up inflation. To achieve greater savings, homeowners should pay off their bonds at a faster rate. Unfortunately, most bondholders don’t realise what significant savings increasing their monthly payments slightly above the minimal required repayment level can make. Bondholders will also be able to invest in a second or third property by doing so.
Lanice Steward, MD of Anne Porter Knight Frank, says the safest and most sensible way to increase your wealth, is to pay off your bond as fast as possible, because great savings can be achieved. On a R500 000 bond, repayments at 12.5% over 20 years are R5680 per month and this adds up to a total of R1 363 368 over the 20 years. But if you increase the monthly payment to R7000 per month at 12.5%, the repayment time will be cut to just under eleven years, reducing the total payments by R442 934.
Most bonds are taken out at prime or closer to prime, and every rand added to the bond earns from 10.5 to 12.5%, which is a return far greater than most other investments can give. Gives you something to think about doesn’t it?
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