It may come as a surprise to many cash-strapped home buyers battling to pay off 20 year bonds that there are still some home buyers who manage to pay off their bonds in five, ten or 15 years.
Drawing attention to this recently, Tony Clarke, MD of Rawson Properties, said that his group has always encouraged people to pay above the going rate if at all possible.
"For the average man-in-the-street, living on a salary and not investing his money in, say, a business or a massive early retirement fund, this is almost always the best way to save - especially now that interest rates are likely soon to be close to 16%,' said Clarke.
'All too often,' he added, 'our more affluent bondholders think they cannot afford higher payments when, with a little austerity elsewhere, they can actually do so.
'Five or ten years after they have accepted our advice and increased their payments, we often find that they are very grateful because the repayment period has been so drastically cut'
Asked to give an example, Clarke said that a bondholder paying a minimum rate on a bond of R500 000 at current rates (say 15,5%) would be paying R6 770 per month over 20 years.
If that bond holder increased this by just 1,2% of the bond amount (R6 000), bringing his monthly payments to R12 770 , he would reduce his bond repayment period to five years. Similarly, on a R250 000 bond, with a repayment of R3385, a R3 000 addition per month to the monthly payments would cut the repayment period to five years. These repayment period cuts, said Clarke, are highly significant.
"I realise that not everyone will be able to afford such increased payments. These are high-paying examples to show people that extra payments considerably reduce repayment periods but far smaller additional amounts can bring about big savings."
'Strangely,' said Clarke, 'although these facts are often publicised, they are not widely appreciated or even accepted'
Big advantages of paying above the going rate on ones bond, added Clarke, are that it enables the bondholder to fix his payments - and to build up a buffer reserve for use if and when times become harder.
