Bond Advice Needed

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Bl4d3

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Hi all

Fiance and I are looking at taking out a bond and needing some advice on the repayments.
For ease of the question, lets assume the bond is R1million over 30 years at prime with no deposit.
This would make the monthly installment R10,094.00
Assuming interest rate remains the same (again, for ease of the equation), the total repayment after the term would amount to R3,633,840.00, 3.6 times the loan amount.

Would the in duplum rule not apply with a mortgage? I cant seem to find any info online.

I know the more you pay, the lower the interest and the faster it will be paid off, however I just cant fathom that the repayment would be this large.
 
Bl4d3 said:
Hi all

Fiance and I are looking at taking out a bond and needing some advice on the repayments.
For ease of the question, lets assume the bond is R1million over 30 years at prime with no deposit.
This would make the monthly installment R10,094.00
Assuming interest rate remains the same (again, for ease of the equation), the total repayment after the term would amount to R3,633,840.00, 3.6 times the loan amount.

Would the in duplum rule not apply with a mortgage? I cant seem to find any info online.

I know the more you pay, the lower the interest and the faster it will be paid off, however I just cant fathom that the repayment would be this large.
Click to expand...
That’s unfortunately how it works, that said I’m not sure how common 30 year bonds are. Certainly does not make sense to try to save R800 per month vs 20 year bond only to end up paying a million more.
 
Most banks prefer to only give you 20 years.

But yes I can see how you calculated, and yes thats the bond rate at 11.75%. but no deposit? Sure some may allow for it, however most would want at least a 15% deposit.

However you can look at say Standard Bank as to how much extra will reduce your bond say via the calculators. Most has calculators.

Bond calculators

Use our bond calculator to estimate your monthly home loan repayments, how much you can afford to borrow, and how you can reduce your bond.
www.standardbank.co.za www.standardbank.co.za

Do note though that youre missing some extras

1. Transfer fees on a R1 million bond is about R60295 that you would need to pay out of your own pocket, or this needs to be added to the bond.
2. Banks normally require an 15% deposit to purchase.
3. You would need to have bond insurance for both you and your spouse. Can be easily R1000+ per month
4. Electricity is about R1k a month and rates and taxes can be similar, depending where you buy, so you have to add that in as well.
5. And then there are home maintenance, (painting, leaking, plumbing etc)
6. Then seperate from that you have to add in building insurance too (structure, geyser etc) so thats another R500pm +

So buying a R1 million property can easily set you back
R10094 (Bond Payment)
+R650 (if fees included approx)
+R500 Property Insurance
+R1300 Life Insurance
+R2000 Rates, Taxes, Elec
= R14544 per month

And do remember that interest rates fluctuate, and its currently in the middle where it was.

The Bond Payment can easily shoot up to R18k per month for that alone, based on previous high figures of 22%
 
Oh your combined salary needs to be over R36k per month to be able to qualify for a R1 million bond.
 
But if you take it 20 compared to 30 years, you save yourself R1 million in interest payments.

But most banks will only allow 20 years.
 
Oh and if you buy into an apartment and not a freestanding house, you may have to pay additional levies, let alone special levies (ie repaint the complex can slap you with a special levy bill of R50k easily.)

Sorry, what I may say sound harsh, but property ends up being far more costly than you can imagine however.

My friend bought a house 12 years ago for 750k, he still owes about 350k. However his property value went from 750k to 2.4 million.

He is paying about R8100pm+ for the bond alone. At current value it would cost him about R26k per month, which he certainly would not be able to afford.

To have qualified his salary needed to be 27k at the price he bought compared to about R87k per month today. So he would not have been able to afford it at today's value.

So you have to think LONG TERM
 
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If you cant make payments (with a zero deposit), rather rent.

Work out the interest rate when it hits 15%! Can you still afford it? (Think bad situation first before the good)
 
Bl4d3 said:
I know the more you pay, the lower the interest and the faster it will be paid off, however I just cant fathom that the repayment would be this large.
Click to expand...
It’s not that large. It’s future money, which has way less value than present money. I.e., consider that in 30 years, your final payment will probably get you a dinner for 2 at the Spur.

You may want to read up on front loading:

Is the Mortgage Front-End Loaded? - The Mortgage Professor

This article rebuts the fallacy that lenders make extra profits by loading interest into the early years of the loan
www.mtgprofessor.com www.mtgprofessor.com
 
Thanks for all the input, much appreciated, question has been answered
 
cguy said:
It’s not that large. It’s future money, which has way less value than present money. I.e., consider that in 30 years, your final payment will probably get you a dinner for 2 at the Spur.

You may want to read up on front loading:

Is the Mortgage Front-End Loaded? - The Mortgage Professor

This article rebuts the fallacy that lenders make extra profits by loading interest into the early years of the loan
www.mtgprofessor.com www.mtgprofessor.com
Click to expand...
Yep, they are front-end loaded, that's why the secret is to pay extra every month, even if it is R50, because that R50 starts to eat away at the principal amount, the R10,000 that you pay does not.

@Bl4d3 , the difference between 2 bottles of Jacobs and a tin of Ricoffy is R180. On a 20 year bond of R1,000,000 at 12%, you can shave 14 payments off your loan (that's more than R154,152.00).

Better still is if you increase the R180 every year with inflation, coffee does go up in price after all.
 
There is one more payment to consider - the title deed transfer. I think I paid about 4k for it. What a feeling that was though once it was done. Mine, all mine.
 
Keep in mind that things could still get much tougher financially if you have a bond. We could well be going into another recession like the 2007-2008 crisis when our repo rates went as high as 15%.

If you're buying a house now you need to do the maths to be sure you can afford your monthly payments if we go through something like that again.

Property in SA is not the safe investment it once was where we were almost guaranteed to beat inflation.
 
Sensorei said:
Keep in mind that things could still get much tougher financially if you have a bond. We could well be going into another recession like the 2007-2008 crisis when our repo rates went as high as 15%.

If you're buying a house now you need to do the maths to be sure you can afford your monthly payments if we go through something like that again.

Property in SA is not the safe investment it once was where we were almost guaranteed to beat inflation.
Click to expand...
Look back a touch further breached 20%
 
Bl4d3 said:
Thanks for all the input, much appreciated, question has been answered
Click to expand...
30 years gets you as a customer for longer. Banks like this, so they might offer you a slightly lower rate, knowing that they could make more money off you over time.

I'd say get a 30 year bond no problem, but you MUST aim at paying it off in less than 20. I'm aiming for 10.

Interest rates will likely not remain this high for more than a year or two, but you must budget for another 3 or 4 percent increase, just to make sure that you're protected against repossession.

All the best
 
RedViking said:
Off topic.

If the ANC does not loose control you can budget for 25% or much more in interest within the next 10 years.

People don't realise how bad the situation really is.
Click to expand...
Nah, i think they'll follow America down the money printer/ lower interest rates / CBDC path.
 
Corelli said:
Most banks prefer to only give you 20 years.

But yes I can see how you calculated, and yes thats the bond rate at 11.75%. but no deposit? Sure some may allow for it, however most would want at least a 15% deposit.

However you can look at say Standard Bank as to how much extra will reduce your bond say via the calculators. Most has calculators.

Bond calculators

Use our bond calculator to estimate your monthly home loan repayments, how much you can afford to borrow, and how you can reduce your bond.
www.standardbank.co.za www.standardbank.co.za

Do note though that youre missing some extras

1. Transfer fees on a R1 million bond is about R60295 that you would need to pay out of your own pocket, or this needs to be added to the bond.
2. Banks normally require an 15% deposit to purchase.
3. You would need to have bond insurance for both you and your spouse. Can be easily R1000+ per month
4. Electricity is about R1k a month and rates and taxes can be similar, depending where you buy, so you have to add that in as well.
5. And then there are home maintenance, (painting, leaking, plumbing etc)
6. Then seperate from that you have to add in building insurance too (structure, geyser etc) so thats another R500pm +

So buying a R1 million property can easily set you back
R10094 (Bond Payment)
+R650 (if fees included approx)
+R500 Property Insurance
+R1300 Life Insurance
+R2000 Rates, Taxes, Elec
= R14544 per month

And do remember that interest rates fluctuate, and its currently in the middle where it was.

The Bond Payment can easily shoot up to R18k per month for that alone, based on previous high figures of 22%
Click to expand...

If you buy off plan there's no transfer fees. But, yes, lots to be aware of before signing on the dotted line.
 
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