Is paying your bond quickly a good idea?

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curds

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Hello,

A little backstory I bought a flat from a developer with my bf and it should be done by the end of the year. We both live abroad and he has no credit score. I think if I remember correctly mine is good to very good. The only debt we have is a cellphone contract I took out for my mother.

Now, I need some advice on how to pay off my bond. I bought a flat from a developer and got a housing loan of prime plus 0.03% We are able to pay around 90% of the bond when it registers. I'm just not sure if paying our bond off so early is wise in terms of our credit score. We eventually want to settle in SA permanently and by then we might have a family so a house would be ideal and we will definitely need a bond for that.

Also, because when I left SA a few years ago I didn't increase my transfer limit etc so when I called the bank to do it they said that they could only increase it to a certain amount for a larger amount I need to come in. So, if I do decide to pay 90% of the bond will the bank be able to debit my account for that amount? I would like to keep family out of it so need a way to pay the bond quickly without giving someone POA.
 
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I would say always pay off others debts first as they usually have a higher interest rate than you bond but since you don't have any definitely pay the bond as much as possible. What I did was pay about 95% of my bond and kept the bond open as it came with cheap building insurance - I was paying about R200 a month for my bond.

I am a bit puzzled as to why you took a full bond if you have 90% of the amount anyway - unless you only recently came into the money.

Either way anything you can do to lower the bond will save you tons of cash over the long term. I'm guessing you are with Stranded Bank, they don't know how to operate anything without you coming in. Should have opened an FNB account, most things can be done online with them.
 
Yes, vampire at the time I didn't have the money, but I will by the time the flat is finished. I'm with standard bank and unfortunately so is my bf. It took us 6 months just to pay the deposit to the developer because of the limit I have on the account.

I'm really new with the whole accruing assets thing and I just don't want to shoot myself in the foot in the long run. Right now I'm able to pay things off really quickly because I have no dependents and my only vice is travelling which I save separately for. Thank you for confirming that it's a good idea to pay the 90% and letting the rental fee pay the rest.

Now just to figure out how to actually do that without having to visit a branch.
 
Very good idea. Go onto the bank's site, bond calculators and up your monthly payment by R500 only, or even R1000, see what you save on interest. You need to kill the interest and capital quickly. And also, with the cash in there once its almost paui up you buy your car out of that and not through finance. Advantage you are in control of when you pay what.
 
freddster said:
Very good idea. Go onto the bank's site, bond calculators and up your monthly payment by R500 only, or even R1000, see what you save on interest. You need to kill the interest and capital quickly. And also, with the cash in there once its almost paui up you buy your car out of that and not through finance. Advantage you are in control of when you pay what.
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Hey, yes I used the amortization calculators and was floored by how much the bank swindle out of you. I get it, it's a business you need to make money, but I think that's a lil ridiculous.

The calculator is actually what made me think paying the house off quickly would affect my ability to get a loan again because the banks lose so much money if I pay it off now I save, but they lose out.
 
If its your primary residence then its usually better to pay it of sooner but in this case no. When you are renting out a place you recieve income that you are liable for income tax. If you have a bond you can write off the interest portion of the loan against that income. Your interest on this flat is also quite low and you can make more money investing elsewhere than you will lose due to the loan. But as always its best to speak to a financial advisor.
 
Beachless said:
If its your primary residence then its usually better to pay it of sooner but in this case no. When you are renting out a place you recieve income that you are liable for income tax. If you have a bond you can write off the interest portion of the loan against that income. Your interest on this flat is also quite low and you can make more money investing elsewhere than you will lose due to the loan. But as always its best to speak to a financial advisor.
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this
 
If you are going to sell the flat to buy the house and use it as a 20%+ deposit you should have no problem getting a bond. For example SAHomeLoans will finance you in that case as you are putting up security. Cash is king. And get an FNB account next time you are here. They are much better.
 
Mmmh I did not know I had to pay income tax on rent. As a non-resident South African I don't have to pay income tax on my salary not sure if that extends to other areas. I was planning on allowing my niece to stay there for a minimal amount (knowing me I probably won't even charge her). So, I'm guessing I will only become liable if my annual income meets a minimum amount which I doubt it will.

I can't speak to a financial advisor because well I'm not in SA and I'm not fluent enough in the language of my residence to speak to anyone here. Thanks for mentioning the income tax though when I was speaking to my family etc about renting the place out and tax never came up.
 
stricken said:
If you are going to sell the flat to buy the house and use it as a 20%+ deposit you should have no problem getting a bond. For example SAHomeLoans will finance you in that case as you are putting up security. Cash is king. And get an FNB account next time you are here. They are much better.
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Didn't FNB have a leak a few months ago though or some security issue? Anywhoo it will definitely be on the ever growing list of things to do when I come for visit and glad to know that with a big enough deposit it shouldn't matter too much how quickly I paid off the flat.
 
Aren't there extreme penalties for settling early?

Or does the usual three month notification apply?
 
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SauRoNZA said:
Aren't there extreme penalties for settling early?
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Depends on the contract. The FNB contract I have imposes penalties if I settle without giving three months' notice. So obviously, there's a way to avoid the penalty.
 
3WA said:
Depends on the contract. The FNB contract I have imposes penalties if I settle without giving three months' notice. So obviously, there's a way to avoid the penalty.
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Yeah that's the standard one, but I seem to recall there was another for super early settlement.
 
SauRoNZA said:
Aren't there extreme penalties for settling early?

Or does the usual three month notification apply?
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If you are cancelling the bond because you are selling there may be penalties.

If you are simply just settling to bond penalties may not necessarily apply.
 
saturnz said:
If you are cancelling the bond because you are selling there may be penalties.

If you are simply just settling to bond penalties may not necessarily apply.
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You can also pay in 90% of the money instead of settling and then settle a month later to avoid the 3month interest penalty on outstanding debt.
 
Beachless said:
You can also pay in 90% of the money instead of settling and then settle a month later to avoid the 3month interest penalty on outstanding debt.
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I settled my bond without notice, no penalty because I wasn't selling so that sort of manipulation may not be required.
 
saturnz said:
I settled my bond without notice, no penalty because I wasn't selling so that sort of manipulation may not be required.
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Same here. Only a cancellation fee if you want to close the bond account.
 
Asset vs Liability lesson here. People think buying a house with a bond is an asset. No it's not. You're paying off the bond, which is a liability, and you don't own the house, the bank does.

If I were you I'd pay off the bond immediately. An asset reflects better on your precious "credit score" than it would be debt. I have 0 debt and my credit score is amazing.
 
saturnz said:
If you are cancelling the bond because you are selling there may be penalties.

If you are simply just settling to bond penalties may not necessarily apply.
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Settling = no.. this was the case years back but it was regulated to nolonger be practiced. On vehicles there are also regulations in place on max penalties etc not sure if there are limits on other loans.
 
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