7 Ways to Make Your Bond Work for You
Owning a home in South Africa is a significant milestone and a valuable investment. However, the bond (mortgage) you take out to finance your home can also be a powerful financial tool if managed wisely. Here are seven ways to make your bond work for you.
1. Pay Extra Whenever Possible
One of the most effective ways to reduce the term and total cost of your bond is by making extra payments whenever you can. Even small additional payments can significantly cut down on the interest you’ll pay over the life of the bond. Consider rounding up your monthly payment or making a lump-sum payment when you receive a bonus or tax refund.
2. Opt for a Flexi Reserve Account
Many South African banks offer a flexi reserve or access bond option. This allows you to pay extra into your bond and then withdraw the additional funds if needed. This can serve as an emergency fund, providing financial flexibility while still reducing your bond balance and interest.
3. Refinance for a Better Rate
Keep an eye on interest rate trends and consider refinancing your bond if rates drop significantly. Refinancing can lower your monthly repayments or shorten the bond term without increasing your monthly payments. Always compare the costs associated with refinancing to ensure it’s a beneficial move.
4. Use Windfalls Wisely
Whenever you receive a windfall, such as an inheritance, bonus, or tax refund, consider paying a portion of it into your bond. This can drastically reduce your principal balance, yielding substantial interest savings.
5. Keep an Eye on Your Bond Statement
Regularly review your bond statement to ensure all payments are correctly applied and to monitor your progress. This helps you stay motivated and on track with your repayment strategy. It also allows you to catch any errors or unexpected charges early.
6. Consider Shortening Your Loan Term
Consider switching to a shorter loan term if you can afford higher monthly repayments. While your monthly payments will increase, you’ll pay off your bond faster and save a significant amount in interest. This option is useful if your income has increased since you first took out the bond.
7. Leverage Your Home’s Equity
As you pay down your bond, you build equity in your home. This equity can be leveraged for other financial goals, such as home improvements, education expenses, or investing in another property. However, use this option wisely and avoid over-borrowing, which can lead to financial strain.
Making your bond work for you involves strategic planning and disciplined financial management. By paying extra, refinancing wisely, and leveraging your home’s equity, you can reduce the cost of your bond and achieve your financial goals more quickly. Regularly reviewing your bond statement and taking advantage of flexi reserve accounts can provide additional flexibility and savings. With these seven strategies, you can transform your bond from a financial burden into a valuable asset.