Mortgage vs Study Policy

[GAD]

I'm in 2 minds. After my dissapointing returns on my first childs policy I'm rethinking my son's study policy.

It will be 10years of investment in 5months time. The penalty for early termination of the policy is almost R 7000.

Now here is my first question:

1. How much of that penalty fee is going towards commision fees that is lost due to early termination. If this a way to deter people from terminating a non performing investment. They dont lose money. YOU do. And their commisions stays the same no matter how bad the markets are.

I understand that u must pay for services rendered but this....

2. Secondly will it not be better to safe the money in my mortgage bond. Safe from flactuations in unstable markets. You safe on the broker's commision and interest of the bond and the money is available when needed.

Im asking all this because it seems that brokers are not giving straight answers and it seems as if they are trying to put you off from ending a product.

And is it realy worth cancelling the policy. How long will it take to recover the lost in a bond??

HEEEEEEELLLLPPPP.
Honest advice needed

 

[bchip]

Saving the money in your mortgage bond will probably outperform the investment,
the thing about this is though you are not segregating between your kids money and yours.

So if you have -100 bond, and you "save" 60 then you sit with -40 bond
how much can you pay the university....zero.

Personally my view on savings for kids funds is something more in line with this,
these funds dont have costs and have guaranteed reasonable returns
(you need guaranteed returns as it helps with planning - eg what if the stock market crashed a year before your kid went to school?)

http://myshares.co.za/wp/2016/02/21/make-million-r-30000-per-year/

only my 2c

 

[Friedpet]

What type of product do you currently have?

Saving for your child's needs in your bond is definitely an option. You will basically be saving at your bond's interest rate.
Just bear in mind that you can never save more on your bond than what your original loan amount was unless you try to take a second bond on your home. With the price of tertiary education rising, there is a chance that in a few years time you won't be able to afford a 3,4 or even 6-year degree at a top university.

TFSA is a good option, but I personally won't use it. The longer you leave a TFSA the bigger the returns will be. And once you take money out, you can't put it back. (R33000 yearly, R500 000 total cap). I would leave a TFSA for retirement. I will also definitely not open a TFSA for my child and use it for his/her education. But if you want to be safe with guaranteed returns, if you have a good retirement annuity, or if you hope your child will look after you one day when he/she has a good education, go for it.

To answer your questions:
1. I don't know how banks work. Maybe it is to recover lost commission, maybe not.

2. It might be better. Don't know what product you have now. Also, what is your bond's interest rate? How big is your bond?

 

[GAD]

Both very helpfull advice indeed.

Finally got straight answers from the broker after getting hot under the collar.

And boy oh boy was I surprised how bad it performed.

@bchip I never thought if that way . An eye opener but money well spent is better than money well wasted.

But I have decided. Rather the penalty and the cash pay out into my excess bond than feeding the unstable markets and broker with my hard earned money.

10 years of investment with a R4000 growth.

Never ever I will be fooled by again.

Deduct my R6000 penalty and I am with a R2000 loss after 10 years.

@$/$#/

 

[Topdoggdbn]

School fees.
Broker still got their fees though.

 

[Topdoggdbn]

Father in Law went the mortgage route.
Paid it off sooner(well kept it low) and then paid for studies with extra cash.

Works well in theory but not for everyone because if you lose focus you gonna have to access the bond. very hard to stay focused when it seems like you have extra cash every month

 

[raeesdawood]

I'm in 2 minds. After my dissapointing returns on my first childs policy I'm rethinking my son's study policy.

It will be 10years of investment in 5months time. The penalty for early termination of the policy is almost R 7000.

Now here is my first question:

1. How much of that penalty fee is going towards commision fees that is lost due to early termination. If this a way to deter people from terminating a non performing investment. They dont lose money. YOU do. And their commisions stays the same no matter how bad the markets are.

I understand that u must pay for services rendered but this....

2. Secondly will it not be better to safe the money in my mortgage bond. Safe from flactuations in unstable markets. You safe on the broker's commision and interest of the bond and the money is available when needed.

Im asking all this because it seems that brokers are not giving straight answers and it seems as if they are trying to put you off from ending a product.

And is it realy worth cancelling the policy. How long will it take to recover the lost in a bond??

HEEEEEEELLLLPPPP.
Honest advice needed

Hey @GAD im a financial advisor so maybe my two cents can be of some help.

The commission part depends on how the broker or investor actually took his commision did he take it upfront as a lump sum or was he more concerned and took it 'as and when'- takes monthly amount and it increases or decreases depending on how the fund has done.

I would maybe advise you if youre looking at another 10 years investment/saving to look at an endowment investment plan the nice thing is that
After 5 years u can withdraw money without any penalites,or let it mature at 10 years.
The nice thing about an endowment is that its taxed within the fund so u dont see that tax taken out directly from your investment.

With regards to the mortgage thing its a good idea if u can as the first reply said keep your money seperate from the study fund.
If you're definitely looking to atleast be beating your current investment you can choose to place your funds in the property market (within the endowments) as they seem to be very stable performing funds IMHO.

Maybe also have a look at your fund fact sheets that your current investment is in. Or ask your broker why he hasnt looked at the fund performance.

Kind regards

 

[Lord Farquart]

I started with these study policies, then realize it was a bottomless pit. I then cancelled it and dumped the installment into my bond. The idea was to then pay for studies from the bond. Well 12 years down the line and I am still paying that money into the bond. The cash is available if needed, but I am paying her university fees from my salary. Not even touching the bond. These brokers can go screw themselves. Fortunately I have learned from my dad's mistake.

 

[GAD]

Hey @GAD im a financial advisor so maybe my two cents can be of some help.

The commission part depends on how the broker or investor actually took his commision did he take it upfront as a lump sum or was he more concerned and took it 'as and when'- takes monthly amount and it increases or decreases depending on how the fund has done.

I would maybe advise you if youre looking at another 10 years investment/saving to look at an endowment investment plan the nice thing is that
After 5 years u can withdraw money without any penalites,or let it mature at 10 years.
The nice thing about an endowment is that its taxed within the fund so u dont see that tax taken out directly from your investment.

With regards to the mortgage thing its a good idea if u can as the first reply said keep your money seperate from the study fund.
If you're definitely looking to atleast be beating your current investment you can choose to place your funds in the property market (within the endowments) as they seem to be very stable performing funds IMHO.

Maybe also have a look at your fund fact sheets that your current investment is in. Or ask your broker why he hasnt looked at the fund performance.

Kind regards

Thanx. At least MyBB creates a platform to educate people like myself.

Some people are taking advantage because of others ignorance.

I've seen people stunned about my sudden 'wisdom' and I smile because and know that its all credit to people like yourself and others here on MyBB.