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Weighing up the pros and cons

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You’d think paying off your bond early is always a good idea, but there are good reasons not to, says expert.

Statistics South Africa has revealed that a majority of consumers have settled their bonds, and this has encouraged other homeowners to consider the prospects and viability of paying off their home loans early.

However, the question of whether one should or should not pay off the bond early has no correct or incorrect answer, says Calvin Ndlovu, head of operations at FNB Home Loans.

“It all depends on your individual circumstances and long-term objectives, and how you plan to structure your own or family finances,” says Ndlovu.

Advantages include:

Early settlement can help you save on interest, allowing you the freedom and the money to pursue other ventures.  

If you are approaching retirement and are planning to settle in that particular home, it is advisable to pay it off. 

You eliminate the risk of defaulting if you are self-employed or temporarily employed.

A paid-off bond provides a safe haven in tough economic conditions.

Having more disposable income at hand can help you put more towards your short-term or retirements savings.

As with most things though, Ndlovu says there are also disadvantages, and when it comes to paying off home loans early, some things to consider are:

You can save more money on interest by paying off other debt first such as personal loans, credit cards and car finance. This is because a home loan typically offers you the cheapest debt available.

You will save on tax if you let your property because interest paid on your bond is tax deductible.

Depending on your goals, diversifying by saving and investing the money elsewhere could be more ideal.

If you’ve paid off your bond you will no longer have access to debt at a low interest rate which could be used for renovating or emergencies. 

As a property investor you can use the extra cash to put down a deposit on another property and still have access to funds in your bond.

You will be liable for bond cancellation fees and may be charged additional interest if you fail to notify your bank 90 days in advance that you are planning to close your home loan account.

“Before making this important decision, seek advice from an expert or financial adviser about your personal financial goals to make a choice that best suits your needs,” Ndlovu says.

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