Three ways to get a better bond

Owning property is in South Africans' DNA, says Colin Strumpher, Sales Manager at BetterBond. It's a right of passage - we grow up, leave home, get a job, buy a car and then a place of our own. We're constantly striving for a better life. "We are seeing a lot more people getting into the property market right now, with interest rates so low, and a high percentage of them are first-time homebuyers. But we find that few of them know the ways to get a better bond. It could be securing a 100% home loan with no deposit required, negotiating the best interest rate, or paying off your home loan early."

Bond origination

Strumpher explains that as bond originators, BetterBond does all the shopping around for homebuyers, without charging them a cent. Bond origination involves submitting a bond application to multiple banks, including a client's own, to get them the best interest rate on their home loan.
There's good reason to use a bond originator to handle your home loan application! On average, BetterBond achieves a 0.6% difference in interest rate between the highest and lowest offers from the different banks, and in some instances much more. This means, for example, that if you qualify for a prime interest rate of 7% on a R1 million bond, you could receive a further reduction of 0.6% just by getting your home finance through BetterBond. This would mean saving nearly R400 on your monthly bond repayments and paying nearly R87 000 less over 20 years!

Three tips

Strumpher has these three great tips to help homebuyers get the best out of their bonds:

1. Fixed vs variable interest rate

Some buyers consider fixing their interest rate, especially now that the prime lending rate is at its lowest in more than five decades. "This is a personal choice, but remember that fixed rates are generally higher than the base or prime lending rate, and you can only negotiate it after bond registration. Also, remember that the period over which you can fix the interest rate on your home loan is usually only one or two years - not for the entire term of your bond," explains Strumpher. After this, the bank will revert to the variable interest rate, or you will have to renegotiate a new fixed interest rate. "Opting for a fixed rate will also negate any savings that BetterBond could secure by approaching multiple banks on your behalf, and it will end up costing you more in interest over the long run." A variable interest rate, however, does mean that your home loan repayments on the outstanding balance of your bond will fluctuate as the prime lending rate changes over time.

2. Pay off your bond quicker:

Making extra bond payments could mean massive reductions in interest on your home loan. And by paying more than the required monthly installments, you could also shave years off your repayment period. This example shows how you could reduce your home loan term by more than four years, simply by paying R1 000 extra a month on a R1 million bond, at a prime lending rate of 7%.

"The critical thing for any homeowner - if you have any additional funds - is to pay these into your bond. For example, if you continued your bond repayments on a R1 million home at the interest rate of 10% like it was at the beginning of 2020, rather than dropping it to the prime rate of 7% as it was at the start of 2021, you'd reduce your bond term by seven years!" explains Strumpher.

"It doesn't even have to be as much as R1 000 per month extra. As little as R100 extra each month on a R1 million bond will trim six months off the term of your home loan, and save you about R27 000," he adds. It is not a case of taking all your savings and putting it into your bond, but rather being disciplined and putting something extra - whatever you can afford - into your bond regularly. "Anything that you can pay in addition, do. It reduces the balance, which reduces the interest that the bank will charge."

3. Keep your home loan account open

Don't cancel your bond (close your bond account) once you have paid it off. Keeping the bond account open means you could access funds if needed in future. Any amount you pay over and above your installment lies in an access facility and this can be accessed at a later stage and used as desired," says Strumpher. Bear in mind that there could be a small monthly administrative fee charged by the bank to keep the account open.
Many homeowners use their primary residence to access funds to buy a second property. For example, paying "cash" for the second property and saving bond registration fees. Strumpher adds, "There is no real benefit in cancelling your bond, unless you are selling the property, or you are absolutely sure that you will not be needing to access funds again. The bank will keep your account open unless instructed otherwise."