Your bond is a great place to store money and in this oncoming decreasing interest rate environment, it presents a powerful opportunity to make deep inroads on this and any other debt you may have.

This is not unlike the opportunity that the Guptas saw when capturing our state. Unlike their risky exploits, storing cash in your bond is a great way to save for your immediate needs and to save on interest as well as pay down debts sooner. This reduces your risks all around as you free yourself from long-term mortgage (bond) repayments by paying this off sooner.

Remember that if you have debt, paying down the highest rate instruments first is ideal. We are assuming, here, that your main debt is a bond on a property and that this has an access facility as well (see below).  By paying more then your required monthly debit, either by increasing your debit order or by transferring lump sums into it, you save on interest calculated and included on your monthly debit and thereby decrease the term thereof.

Go onto any bond calculator, if you don’t have one give us a call, and capture your current bond details and then add in extra amounts on your debit order or as lump sums (this is regardless of your currency – ZAR, $ or Euro). The savings you make both in interest and time is there to see, and is massive.

Example:

  • On a 30 year bond of R 2 million at Prime;
    • By paying an extra R 1,000 per month increasing at 7 % annually:
      • Save R 1 million in payments & 10 years off the term.
    • Only have R 250 extra:
      • Save close to R 250,000 – who wouldn’t want to save that?

This question was asked by a client of mine when she watched a video on YouTube showing this – it was American hence I am not sharing as their financial system is very different. However the facts are not, if you put more into your bond than what is required by the Bank, you will save on time and interest.

Access Bonds

An access facility on your bond allows you to access any extra money you put into your bond. So if you increase your monthly debit above the required (bank nominated) amount or pay lump sums into your bond. This should be accessible at any point.

So by adding in extra money, you decrease the amount that the interest is charged on and increases the allocation of you monthly payment to any capital owed. As such the more you put into it the quicker it pays off and, as such, the lower the interest you pay thereon.

  • The real power of this is that when you need cash you can withdraw from this ‘access facility’; &
  • It is a better ‘investment’ than putting money in call accounts or cash investments as the interest you are paying (and as such saving) on a bond is always higher then what a money market or cash-based investment.

Prime rates are usually higher than your money-market returns due to the higher risk thereon.

What is important to You?

Saying all the above, remember that investing and financial planning is a personal investment into your future. If you feel you want cash in a separate investment or have another need or ‘want’ that you feel more calls you, then consider the impact and make a call. It is easier to stick with something if you buy into it and trust its purpose over forcing something that doesn’t make you feel comfortable nor ‘happy’ about is purpose.

It is easy to fall out of a habit and creating solid, positive financial ones are so important for your successful financial future.

Points on the above

  • Please consult with your bank to find out if your bond has an ‘access’ facility.
  • Always take your own financial planning and needs into account when implementing a strategy. Consult with those you trust and reach out to us should you want a conversation hereon.