20 or 30 Year Bond

T

TheGuy

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Hi Guys

I'm in the process of buying my first place and was wondering if I take a 30 Year bond and pay it of in say 7 Years will I still pay more interest on the 30 year bond?
 
Yes. From what I remember, you essentially need to "buy out" your bond. Usually the first few years of a bond are spent payign the interest (nothing off the capital amount comes off your actual bond).

If you would like to pay it early, you need to make up for all the interest you're missing out on. Rather go for a 20 year bond and pay it off early. The banks must make their money for lending you money. :p
 
I'd like to know too. Because taking out a 30 year bond will make it much easier to spend money on other things when I need to.

I've also heard of flexibonds or something, where you can take money out of loan which you paid over what you were required to pay. So if you paid 4000 one month, instead of the 3000 which your bond requires each month, you can withdraw a 1000 later on if needed.

This way you are in more control. You can pay off your loan in 20 years still if you prefer, but if you then need extra money, you can take it out of your home loan, instead of getting a personal loan at double the interest.
 
djEJ said:
Yes. From what I remember, you essentially need to "buy out" your bond. Usually the first few years of a bond are spent payign the interest (nothing off the capital amount comes off your actual bond).

If you would like to pay it early, you need to make up for all the interest you're missing out on. Rather go for a 20 year bond and pay it off early. The banks must make their money for lending you money. :p
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Do you pay more interest on a 30 year bond, even if you pay off both in 20 years, at the same rate?
 
sutekj said:
Do you pay more interest on a 30 year bond, even if you pay off both in 20 years, at the same rate?
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If every month you make the same payment as if it was a 20 year bond payment, then no, both will cost you the same amount.
 
Go for 20, if you must consider 30 it means you should be thinking of a downgrade. Plus the added 10 years don't make a big difference on the monthly payments but adds a truck load in interest.

Archer said:
If every month you make the same payment as if it was a 20 year bond payment, then no, both will cost you the same amount.
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Beware the temptations...
 
sutekj said:
I'd like to know too. Because taking out a 30 year bond will make it much easier to spend money on other things when I need to.

I've also heard of flexibonds or something, where you can take money out of loan which you paid over what you were required to pay. So if you paid 4000 one month, instead of the 3000 which your bond requires each month, you can withdraw a 1000 later on if needed.

This way you are in more control. You can pay off your loan in 20 years still if you prefer, but if you then need extra money, you can take it out of your home loan, instead of getting a personal loan at double the interest.
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This is also what I'm wondering as I have a separate "emergency Fund" and would like to put everything I possibly can into the bond and then just take it out in Emergency. it has to be available immediately.
 
I've gone the route of taking a 30 year bond, but will be paying it off in 15 years...

It just gives me a bit of wiggle room if things go a bit pear shaped.
 
B.O.F.H. said:
I've gone the route of taking a 30 year bond, but will be paying it off in 15 years...
It just gives me a bit of wiggle room if things go a bit pear shaped.
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+1. You never know what will happen to interest rates in the future so best give yourself a bit of wiggle room ... but then get the bank to set your repayment amount to be what it would be if you paid over 20 years (or less if possible).
 
R13... said:
Go for 20, if you must consider 30 it means you should be thinking of a downgrade. Plus the added 10 years don't make a big difference on the monthly payments but adds a truck load in interest.


Beware the temptations...
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My budget will allow me to pretty much double the repayments required. I'm just thinking if I get retrenched or something then I can get my expenses as low as possible.
 
Yup... Thats what I've done..

I could easily afford the 20 year loan... but chose to go 30 years, and keep the repayments at the level it would have been for a 20 year loan.... Plus I'll be paying in extra every month as well...

The money that goes into the bond over and above my normal repayments will be available to me in an emergency.
 
B.O.F.H. said:
Yup... Thats what I've done..

I could easily afford the 20 year loan... but chose to go 30 years, and keep the repayments at the level it would have been for a 20 year loan.... Plus I'll be paying in extra every month as well...

The money that goes into the bond over and above my normal repayments will be available to me in an emergency.
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Thats what I will do as well.

BTW Bonds are Simple interest and not Discount Interest like car purchases. So some comments are misleading about paying off early.
 
The only thing you need to remember if paying of early, is that most banks need a 3 month 'warning', that you would like to settle the bond. Otherwise there is a penalty fee.
 
sutekj said:
I've also heard of flexibonds or something, where you can take money out of loan which you paid over what you were required to pay. So if you paid 4000 one month, instead of the 3000 which your bond requires each month, you can withdraw a 1000 later on if needed
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This is known as an "access bond" ... but different lending institutions will differ as the the initial 'qualifying' period before you could access the excess funds in the account.

... and do yourself a favour - it seems you can afford to pay it off over a maximum 20 year period, but are considering a 30 year period? Stick with a max of 20 years, and try to pay it totally off in as short a time as possible. Put any and all excess funds you may have available into the mortgage (as long as you have an 'access' bond facility). It is the most efficient way to save money, and the effective interest rate you earn is the interest rate you are paying on the mortgage. And it's tax-free.
 
Also normally the difference between a 20 year old and a 30 is a couple hundred rand, but the bank for me wouldn't give us a 20 year bond cause I got 100%
 
OMG... okay, I may know **** all, and I'm speaking under correction:

Your interest gets calculated on a daily basis. 20 years have less days than 30 years.

If your repayment is R4000 monthly, you're more than likely to be paying about R3000 *just* in interest accrued for that month. So R1000 goes off towards the sum you actually borrowed for. This is how, when you pay in MORE than you need to, you reduce the repayments each month slightly since the interest calculated on what you actually borrowed for each month is *less*.

So if your intention is to take a 30 year bond and pay it off in 30 years, you're going to pay for several more houses during that lifetime. Same goes for 20 years but it's less than 30 (if you're confused, re-read what I just said)

If you're going to stick with paying in at least double the amount of the repayment each month to pay off the house quicker, there's no real benefit of taking out a 30 year loan at all. Even if it's not double but consistently more (by at least a 1/3) it wouldn't matter if you got a 20 or 30 year repayment.

As said previously (and this goes the same with short term insurance and the upfront fee you pay), there comes a point where it doesn't make much difference. If the difference is R1000 and you plan on paying in that R1000 extra anyway (wiggle room or not), you might just save yourself the heartache, tighten your belt and go for the 20 year bond and be done with it.
 
ABCpt said:
The only thing you need to remember if paying of early, is that most banks need a 3 month 'warning', that you would like to settle the bond. Otherwise there is a penalty fee.
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You simply pay off everything except for the amount you'll owe for each of the remaining three months, then give notice. Even better get them to cancel the debit order and make the payments yourself, then you can pay off everything, but 1 cent, give notice and pay the last cent after three months.

cbrunsdonza said:
BTW Bonds are Simple interest and not Discount Interest like car purchases. So some comments are misleading about paying off early.
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My vehicle loans have all worked exactly the same as my home loan, except the very first one back in the days of the hire purchase rip-off.
 
sutekj said:
I'd like to know too. Because taking out a 30 year bond will make it much easier to spend money on other things when I need to.

I've also heard of flexibonds or something, where you can take money out of loan which you paid over what you were required to pay. So if you paid 4000 one month, instead of the 3000 which your bond requires each month, you can withdraw a 1000 later on if needed.

This way you are in more control. You can pay off your loan in 20 years still if you prefer, but if you then need extra money, you can take it out of your home loan, instead of getting a personal loan at double the interest.
Click to expand...

rather go for an access bond. then you can get hold of money when you need it.
 
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