Slashing your bond
With household debt at a high and uncertainty about interest rates looming, homeowners need to learn to save long-term. One way you can start to save some cash is to pay your bond off faster.

With good economic conditions now prevailing in South Africa, most homeowners are seeing their annual earnings increase year-on-year ahead of the current inflation rate.

In this scenario, middle-class savings should be rising by close on 10 percent per annum. But according to Lanice Steward, MD of Anne Porter Knight Frank, "this is just not happening".

Adopt the ‘culture’ of saving

"The newly empowered middle-class as yet has no real culture of long-term saving. Instead, we are seeing a massive rise in consumer spending which in turn is pushing up inflation," says Steward.

Ideally, as an income earner you should set aside a larger portion of your salary or savings each year — and by far the best way to do this is to pay off the bond on your home at a faster rate.

"Most bonds are taken out at prime or close to prime. This means that every rand added to the bond in a sense 'earns' from 10.5 to 12.5 percent — which is a return far greater than most other investments can give," says Steward.

Wake up to what you can save

Bondholders do not appreciate what significant savings can be made by increasing their monthly payments slightly above the minimal required repayment level.

"On a R500 000 bond, repayments at 12.5 percent over 20 years are R5680 per month. This adds up to a total outlay of R1 363 368 over the 20 years — that is almost three times the amount borrowed.

"Supposing the same bondholder decides to increase his monthly payments to R7000 per month (at the same interest rate). This would cut the repayment time to just under 11 years and would reduce the total payments by a staggering R442 934."

What's more, in many cases the faster repayment could help the you to invest in a second or third property.

"I do appreciate that people with a financial or business training can find more profitable ways of investing their cash — but for most people who are kept busy throughout their day at their work duties, and are not particularly knowledgeable about economics, paying off a bond fast is still the safest and most sensible to increase their wealth," says Steward.

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