Five things you need to know about home loans

Buying a home is a significant purchase, and one that will most likely require some form of financial assistance in the form of a bond, also known as home loans. While this process is standard practice for most buyers who are unable to pay cash for their homes, there are some things about having a bond that may come as a surprise.

The earlier in the month you pay your bond, the less interest you will accumulate

This can help you shave years off your bond repayment over the loan repayment period. Another trick to save interest is to split your monthly bond installment. So, if your bond repayment is R8,000, arrange with the bank to deduct R4,000 on the last day of the month and the balance on the 15th. The full amount will be paid within a 30-day period, but the interest – which is calculated daily – will be reduced.

Paying more can save you a lot of money

If you can pay more than the required monthly repayment on your bond, you take years off your bond repayment period. Also, by paying off the balance sooner, you’ll reduce your interest over the loan repayment period. On a R2 million bond, at a prime lending rate of 11.75%, a payment of R1,000 extra each month will save R564,586 in interest over the loan period, which will also be shortened by three years from 20 years to 205 months.

Don’t cancel your bond once you have paid the full amount

If you keep the bond open, it will still be possible to access funds if needed. Any amount you pay over and above your installment lies in an access facility and this can be accessed at a later stage. Many homeowners use their primary residence to access funds so that they can buy their second property. There is no real benefit in cancelling your bond, unless you are selling the property, or you are sure that you won’t be needing to access funds again. The bank will keep your account open unless instructed otherwise.

Applying for a joint bond can make home ownership more accessible

Up to 12 people can apply for a joint bond. Irrespective of how many people share joint bond ownership on a property, make sure that there is a clear contract in place. This agreement should include information about the sharing of the bond and access to the bond, each person’s financial contribution and who is responsible for managing the property.

A bond originator offers a valuable (free) service

Working with a bond originator can mean a more favourable interest which will save you money on your monthly bond payments. By approaching multiple banks, BetterBond can negotiate an interest rate concession because the banks compete to offer the best deal based on your buyer risk profile.

It may seem daunting at first, but with expert advice and some insider knowledge, you can navigate the homebuying journey knowing that you are making an informed decision.