How much you can save by paying R600 extra into your bond each month

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How much you can save by paying R600 extra into your bond each month

Getting a foothold in the property market as soon as possible is a smart move – even for young single people taking their first steps on a career path.

This is according to Rudi Botha, CEO of BetterBond, who said that young adults who hold off on buying their first property until they have settled in to a new job, or until they get married are losing out on an opportunity to start building real wealth.

“It is true that as a young person you may be a prime candidate for company transfers, especially if you are single and newly-qualified. You may also be worried about getting ‘stuck’ with a property that your future partner won’t like or is too small for a family,” he said.

“But a residential property is not just a place to live. It is also an asset that appreciates in value, unlike cars, clothes, furniture and other things that young people tend to buy, and a great savings mechanism at the same time.”

Citing the latest FNB House Price Index, Botha noted that property prices in SA are currently 90.8% higher, in real (after inflation) terms than they were in 2001.

“In simple terms, this means that the property buyer who bought a R1 million property with a R100,000 deposit (investment) in 2001 would have made a return of almost 1,000% on that initial investment, and the younger you are when you buy, the more chance you have of achieving such long-term returns,” he said.

“In addition, buyers who put spare cash into their bond account will not only get a better effective rate of interest (tax free) than they would on money deposited to a bank savings account, but also stand to cut many thousands of rand off the total cost of their home by paying it off early.

“If you had a bond of R1 million, for example, and were able to pay an additional R600 a month off the outstanding balance of your bond at an interest rate of 10%, you would reduce the loan term from 20 years to 16 years and 10 months, and save more than R245,000 worth of interest.

“And as long as a home is increasing in value and the bond is decreasing, the owner is building up equity in the property, which can be used as security for other investments, emergency funding or a deposit for another property if they decide to sell and move on. This sort of wealth creation obviously doesn’t happen when you rent.”

Now is also a good time to buy, said Botha, because prices are very negotiable and the banks are keen to lend to home buyers.

Source:BusinessTech


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