Five ways your bond can provide financial peace of mind

While the future is always uncertain, your home loan can be a source of stability and reassurance. Owning a home is not just about having a roof over your head. It’s about building security for yourself and your family. BetterBond highlights five ways your bond can provide financial peace of mind in the months ahead, helping you stay in control no matter what comes your way.

Secure a more favourable interest rate

If you are buying a home this year, apply to more than one bank. This will improve your chances of securing a more favourable interest rate. BetterBond will approach more than one bank on your behalf to secure the most favourable lending rate. Banks will grant concessions depending on your risk profile. Applying to more than one bank also improves the chances of bond approval. When applying to one bank, BetterBond’s approval rate is around 53%. This improves to about 80% when applying to four or more banks. This percentage increases to 95% if you get pre-approved through BetterBond first.

Opt for a fixed rate

As with any financial decision, opting for a fixed or variable rate depends on a buyer’s financial status and budgetary needs. Unlike a variable interest rate, a fixed interest rate remains the same regardless of the Reserve Bank’s changes to the prime lending rate.

New buyers who are concerned about affordability when applying for a bond may consider a fixed interest rate rather than a variable rate given the concerns about inflation and muted economic growth. The appeal of a fixed interest rate is the stability it offers. However, the rate is usually much higher than a variable rate because of the risk it poses to the bank. A fixed rate can also only be set for five years.

Thereafter, you will need to renegotiate, and the prime lending rate could be less favourable than before. However, affordability is always a consideration when buying a home. Setting a fixed rate may provide a buyer with much-needed predictability so that they can budget accordingly. The option for a fixed interest rate is only offered for an initial period after bond registration.

Pay your bond earlier in the month and save on interest

If you are a current homeowner, the earlier in the month you pay your bond the less interest you will accumulate over the loan period. You could also split your monthly bond instalment. You can pay a portion on the last day of the month and the balance on the 15th – to save on costs. Although the full amount will be paid within the 30-day period, the interest which is calculated daily will be reduced.

Pay extra into your bond while you can

Current homeowners who pay more into their bonds now, while interest rates are in a downward cycle, could save on interest over the long term. This could significantly reduce their loan repayment period. By example, on a R2 million bond at a prime lending rate of 11%, an additional payment of R1,000 a month would save R500,835 in interest and reduce the 20-year loan period to just over 17 years. The best time to pay extra on your bond is during the first ten years. This is when the bulk of your payment goes towards the interest. So, if you plan ahead and pay as much as you can on your bond, you'll save thousands over the long term.

Renegotiate your bond terms

Some banks may renegotiate their interest rates and extend the loan repayment term if the holder of the bond has an impeccable credit score and payment track record. Bear in mind that while a longer bond repayment period could lower the monthly repayments, it could add interest to the overall bond amount. This option requires a formal request to the bank and they will usually only grant it in exceptional circumstances.