Repay your bond above the stipulated interest rate, advises Rawson MD

With interest rates likely to drop by 2,5% over the coming year, homeowners should seriously consider “biting the bullet” and continuing to pay their bonds at the existing rate.

This was said recently by Tony Clarke, MD of Rawson Properties, who, on being asked for his advice for 2009, said that this was probably the best tip he could give any current homeowner.

“Build your equity on your main asset, your home. That is the road to future wealth,” he said.

Clarke added that many bondholders still do not appreciate just how much money they can save and how many months they can cut off their bond repayment period if they pay above the stipulated rate.

“Supposing we are fortunate enough to see the 2,5% interest rate drop predicted for this year actually come about, a bondholder with a R900 000 bond (the average size for a middle class bond in SA today) could, if he continues to pay at current levels, save eight years of payments and some R730 000 in all. This is a significant sum and surely one worth going for even it does mean being “short” financially for a few years.”

Even if, as seems unlikely, properties continue to lose value for a few more months this year – or at some other time in the future – the bondholder who has paid off a substantial sum, is in a far better position than the one moving into “negative equity”, i.e. owing more on his property than he can recoup by selling it.

“This, as we have seen in the UK and the US, can be a disastrous situation and should be avoided at all costs.”

Article from: www.rawsonproperties.com