Savvy ways to make the best of the favourable property buying market and save even more by making your bond work for you
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Owning property is in South Africans’ DNA, says Betterbond sales manager Colin Strumpher. We grow up, leave home, get a job, a car and then a house. We’re constantly striving to improve our circumstances. “With the interest rate currently so low, we’re seeing a lot more people getting into the property market and a high percentage of these are first homebuyers,” he says. “However, few people know that there are ways to get a better bond – be it to secure a 100% loan with no deposit required, get a competitive interest rate, or to reduce the amount of time it will take to repay the bond.”
According to Strumpher, BetterBond acts as an intermediary between the buyer and the bank, submitting one application to multiple banks to secure the best possible interest rate for a bond. On average BetterBond achieves a 0.6% difference in interest rate between the highest and lowest offers from the banks, and in some instances much more. This means, for example, that a client who would qualify for a prime interest rate of 7% on a R1m bond, could receive a further reduction of 0.6% just by getting their bond through BetterBond. This amounts to a saving of almost R400 on monthly bond repayments and, over 20 years, close to R87,000.
Reconsider a fixed rate
Some buyers consider applying for a fixed rate, especially now that the prime lending rate is at 7%, the lowest it has been in over five decades. “While the choice is a personal one, it’s worth noting that fixed rates are generally higher than the base or prime lending rate, and can only be negotiated once the bond has registered,” says Strumpher. “Also, the period over which a buyer can fix the interest rate on a bond repayment is usually only one or two years.” Thereafter, the bank will revert to the variable rate. “Opting for a fixed rate will also negate any savings BetterBond could secure by approaching multiple banks for a competitive interest rate, and will end up costing more in interest over the long run.” A variable interest rate on a bond, however, means that the repayment on the outstanding balance on a bond will fluctuate as the prime lending rate increases or drops.
If you’re able to pay more than the required monthly instalment on your bond, you shave years off your bond repayment period. In addition, by paying off the balance sooner, you will also reduce your interest over the loan repayment period. As the example (below) shows, paying just R1,000 extra a month on a R1m bond at the current prime lending rate of 7%, could reduce the duration of your loan by more than four years. “The critical thing for any homeowner if they have any additional funds, is to pay these into the bond,” says Strumpher. “For instance, if you continued your bond repayment on a R1m home at the interest rate of 10% (rather than dropping it to the current prime rate of 7%), as it was at the beginning of 2020, you would be able to reduce the bond term by about seven years.”
If you can’t pay that much, even as little as R100 extra each month on a R1m bond will trim six months off your loan repayment period, and save you about R27,000. It’s not a case of taking all your savings and putting it in your bond, but rather about being disciplined to put something extra – whatever you can afford – into your bond. “Any lump sum that you can pay in addition, do. It reduces the balance, which reduces the interest which the bank will charge.”
Keep your bond open
Don’t cancel your bond once you have paid the full amount. If you keep the bond open, it will still be possible to access funds if needed. Any amount you pay over and above your instalment lies in a facility you can access at a later stage to be used as needed,” says Strumpher. There’s a small monthly administrative fee charged by the bank to keep it open.
Many homeowners use their primary residence to access funds for a second property. “There’s no real benefit in cancelling your bond, unless you are selling the property or you are absolutely sure that you will not be needing to access funds again,” says Strumpher. “The bank will keep your account open unless instructed otherwise.” Accessing your bond and paying ‘cash’ for your second property can save you in bond registration costs.