20 or 30 Year Bond

[NetDude]

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?

IF the plan is REALLY to pay it off in 7yrs, my advice: DO NOT go for "flexi" account... The temptation is too much at times! I managed to payoff my bond in about 6 and things only started happening when I "locked" everything in. BUT, if you wanna have some emergency nest then "flexi" it is. Just don't fall in the trap many home owners usually fall in. ALL THE BEST...

 

[TheGuy]

IF the plan is REALLY to pay it off in 7yrs, my advice: DO NOT go for "flexi" account... The temptation is too much at times! I managed to payoff my bond in about 6 and things only started happening when I "locked" everything in. BUT, if you wanna have some emergency nest then "flexi" it is. Just don't fall in the trap many home owners usually fall in. ALL THE BEST...

What's the trap the home owners fall into?

 

[RVQ]

Recently applied for a bond and only one bank offered the 30yr option. From what I understand the flexi option usually requires you to open a current account at the bank you taking out you bond at.

 

[NetDude]

What's the trap the home owners fall into?

Building up some equity and when an "emergency" arises they are too quick to withdraw the cash. You need to have a clear strategy in mind:
a) Do you wanna pay your bond in 7 years OR,
b) Have an emergency fund by means of a "flexi" account

If (a), pay in extra with no option to withdraw. That's just me... But perhaps I'm not disciplined enough!

 

[NetDude]

From what I understand the flexi option usually requires you to open a current account at the bank you taking out you bond at.

Not necessarily, (I think), I was told (by Nedbank), that a current account would simplify the process of transferring should I wish to access my equity. Not having a current account would mean waiting up to 7 working days... (Speaking under correction).

 

[noxibox]

If (a), pay in extra with no option to withdraw. That's just me... But perhaps I'm not disciplined enough!

You're not disciplined enough, and many people aren't.

 

[davemc]

I paid of my 15 year access bond off in 5 years.
I kept dipping into the access bond to finance large purchaces for a hell of a lot less than a personal loan would have cost.

Now that my bond is nearing it's end (in 2 years time), I feel that I am going to miss that facility terribly.

I say, go for the 30 year bond as an access bond, there are two advantages:
1 - It's an awesome vehicle for cheap finance.
2 - While the bond is open, you can get structural insurance at 1% of the bond's value.

Regarding the interest on an access bond, it's calculated daily, there is no cost difference between a 30 year bond paid off in 5 years and a 15 year bond paid off in 5 years.

 

[TheGuy]

Building up some equity and when an "emergency" arises they are too quick to withdraw the cash. You need to have a clear strategy in mind:
a) Do you wanna pay your bond in 7 years OR,
b) Have an emergency fund by means of a "flexi" account

If (a), pay in extra with no option to withdraw. That's just me... But perhaps I'm not disciplined enough!

but then you can just as easily get into credit card debt and all sorts of other debt. So whether you have an access bond or not the discipline always lies with you.

I paid of my 15 year access bond off in 5 years.
I kept dipping into the access bond to finance large purchaces for a hell of a lot less than a personal loan would have cost.

Now that my bond is nearing it's end (in 2 years time), I feel that I am going to miss that facility terribly.

I say, go for the 30 year bond as an access bond, there are two advantages:
1 - It's an awesome vehicle for cheap finance.
2 - While the bond is open, you can get structural insurance at 1% of the bond's value.

Regarding the interest on an access bond, it's calculated daily, there is no cost difference between a 30 year bond paid off in 5 years and a 15 year bond paid off in 5 years.

This is my thinking as well coz I need to buy a car in the next couple of years and if I can get the bond low enough I can rather take it on the house instead paying a higher rate through normal insurance.

 

[RVQ]

Building up some equity and when an "emergency" arises they are too quick to withdraw the cash. You need to have a clear strategy in mind:
a) Do you wanna pay your bond in 7 years OR,
b) Have an emergency fund by means of a "flexi" account

If (a), pay in extra with no option to withdraw. That's just me... But perhaps I'm not disciplined enough!

I always have emergency funds available. I guess it's better to go with the flexi option and just push all my cash incl. emergency into the bond? Is it pretty easy to get access to the funds in case of emergency? FYI in the many years I had my 'emergency' account I never used it, using that for deposit now...

 

[NetDude]

but then you can just as easily get into credit card debt and all sorts of other debt. So whether you have an access bond or not the discipline always lies with you.

Of course, discipline goes a long way.

... instead paying a higher rate through normal insurance.

"normal insurance"? Ok, I'm lost. I understand the part of financing your car thru your bond but "insurance" part? Please explain.

Sent from the MyBroadband iPhone App

 

[Nerfherder]

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.

I did the same. i did it when the interest rates were high and we could barely afford our house. Then as the interest rates came down we kept our repayment the same, so eventually we were paying an extra 3-4k per month. In a situation like now (where the interest rates are low) its not a good idea to go 30 years on your bond, if you can't afford it on 20 years then you are going to struggle even more when the rates go up.

I think either way, if you go for 30 years then make sure you can pay it off over 20.

 

[Budza]

In a situation like now (where the interest rates are low) its not a good idea to go 30 years on your bond, if you can't afford it on 20 years then you are going to struggle even more when the rates go up.

I think either way, if you go for 30 years then make sure you can pay it off over 20.

Good point. Something to keep in mind.

 

[supersunbird]

Of course, discipline goes a long way.



"normal insurance"? Ok, I'm lost. I understand the part of financing your car thru your bond but "insurance" part? Please explain.

Sent from the MyBroadband iPhone App

I'm pretty sure they wanted to type finance and made a mistake.

 

[TheGuy]

Of course, discipline goes a long way.



"normal insurance"? Ok, I'm lost. I understand the part of financing your car thru your bond but "insurance" part? Please explain.

Sent from the MyBroadband iPhone App

Jip I meant finance


I did a bit of calculation and the bond I'm taking is R488 000 and over 30 years the repayment is around R4000 if I pay an extra R3000 a month it will pay off in roughly 8 Years. The interest saved will be R740 000. That's crazy.

 

[e4et]

Hey guys,
Are there any "tricks" to lessen the interest paid each month ?

I pay extra into the bond each month, but I don't really notice the interest charged changing from month to month, apart from now, since the interest rates have gone up this year.

I read that some suggest making your additional payments twice a month, on the 15'th and again at the end of the month, but not sure if this applies to us that much.
I usually just transfer whatever extra I can afford right after payday.

 

[Lupus]

Hey guys,
Are there any "tricks" to lessen the interest paid each month ?

I pay extra into the bond each month, but I don't really notice the interest charged changing from month to month, apart from now, since the interest rates have gone up this year.

I read that some suggest making your additional payments twice a month, on the 15'th and again at the end of the month, but not sure if this applies to us that much.
I usually just transfer whatever extra I can afford right after payday.

Nope there isn't any tricks really.

 

[RedViking]

Hey guys,
Are there any "tricks" to lessen the interest paid each month ?

I pay extra into the bond each month, but I don't really notice the interest charged changing from month to month, apart from now, since the interest rates have gone up this year.

I read that some suggest making your additional payments twice a month, on the 15'th and again at the end of the month, but not sure if this applies to us that much.
I usually just transfer whatever extra I can afford right after payday.

Don't think you can change the interest rate, but by paying in extra you reduce the term, paying less interest over time. I think it was mentioned you can ask the bank to review your interest rate and if you score has improved, they can adjust the interest rate. @zerocool2009

Extra Bond Payment Calculator | Early Bond Settlement Calculator

An extra bond payment of R250 every month will shorten your bond repayment period by 1.5 years (assuming a rate of 10.25%).

www.ooba.co.za

 

[RedViking]

By only paying the monthly amount:





By paying in R2000 extra:


By paying in R4000 extra:

 

[Jehosefat]

Hey guys,
Are there any "tricks" to lessen the interest paid each month ?

I pay extra into the bond each month, but I don't really notice the interest charged changing from month to month, apart from now, since the interest rates have gone up this year.

I read that some suggest making your additional payments twice a month, on the 15'th and again at the end of the month, but not sure if this applies to us that much.
I usually just transfer whatever extra I can afford right after payday.

The earlier you transfer the money in the better so your approach is the best one.

In terms of noticing the difference in interest, it's very small on a monthly basis but it adds up massively over the long term.

For example, if your bond has R1m outstanding, paying in an extra R1000 will only decrease your interest by about R6 the following month (7% interest rate). However, on a 20 year, R1m bond at 7%, if you pay R1000 extra in every month, you will pay the bond off in under 16 years and save over R200k on total interest. On the same bond but over 30 years, you knock off almost 10 years and save over R400k.

 

[Priapus]

The earlier you transfer the money in the better so your approach is the best one.

In terms of noticing the difference in interest, it's very small on a monthly basis but it adds up massively over the long term.

For example, if your bond has R1m outstanding, paying in an extra R1000 will only decrease your interest by about R6 the following month (7% interest rate). However, on a 20 year, R1m bond at 7%, if you pay R1000 extra in every month, you will pay the bond off in under 16 years and save over R200k on total interest.

Pretty much this.

I pay x 2 the bond amount each month and any bonuses I get 50% of it goes into the bond too. Hoping it will make a big enough impact in years to come.