Bonds And How You Can Get One
Looking for a low interest rate bond? My Bond Quotes offers you easy access to affordable bonds online. We’d also like to provide you with enough bond information to help you make the right decisions when it comes to buying a property.
What exactly is a bond?
Within the context of personal property finance, a bond is the long-term loan a bank or bond company extends to a borrower. This loan is used to pay for the property up-front, whilst the homeowner repays the bank or institutional lender via monthly instalments – generally over a period of either 20 or 30 years.
Getting a bond is a big commitment. Given the fact that property, as an asset class is not particularly liquid, you’ll want to ensure that you are able to afford the flat or house you buy. Selling a property can take up to 12 months or longer, so your source of income should ideally be stable before you consider committing to a 20 or 30-year repayment term on a home bond.
What are bond originators?
In South Africa, it is fairly likely that prospective homeowners will apply for bonds via a bond originator or bond origination company. Companies such as Mortgage SA and Ooba originate bonds – they negotiate with the banks to secure you a low bond rate. SA Home Loans, on the other hand, is a bond company – an institutional lender issuing home bonds to eligible homebuyers. But before you start applying for a bond – be it for first time bonds or investment property bonds – you need to carefully consider your medium to long term property needs:
First-time home buyer?
Things to consider.
If you’re a first time home buyer, you may well only be able to afford a flat or an apartment, depending on the area in which you decided to buy. If you are buying with someone else, you may be able to afford something bigger, but if you’re buying on your own, your budget may force you to start small.
Consider your current life situation. Are you single without any dependents? How likely is that to changes within the next year or two? Should your situation change substantially in the medium term, will your entry-level property be enough to meet your accommodation-related needs? Are you a full-time employee or a seasonal contract worker? How much do you earn, and how much can you afford to spend on your property each month? Will you be able to make ends meet if the prime interest rate hiked by 3%?
Being a property owner means that you inherit all the maintenance responsibilities a landlord would have when renting out his flat or house. Will you have enough money to replace a burst geyser? Will the house need to get painted or renovated in the near future and have you budgeted for this? Have you taken the property tax and levy payments into account? All these considerations may inform your decision, and it is advisable that you don’t treat property buying as a short-term project. You may wish to approach bonds from a ‘what can I afford’ point of view: In order to protect the consumer from getting into uncontrollable debt, South African legislation dictates that you can only use roughly a third of your monthly salary towards servicing a bond.
Bond companies or originators will take a range of financial and credit risk factors into account when calculating the bond amount you qualify for. They’ll also consider your fixed monthly overheads and check your credit record. If you’re a first-time home buyer, this may also be taken into consideration.
So how big a bond do you qualify for?
Most prospective home buyers opt to use free bond calculators to find out roughly how big a bond they can afford. Although this may vary slightly, depending on the interest rate your bond originator can negotiate with a bank, you can basically use the recommended default – the prime interest rate – to give you a basic idea. Simply submit the relevant figures and information into the bond calculator – remember to be honest with yourself, and take all your overheads and periodic expenses into account. Don’t forget about things like school fees and vehicle services – these things too come out of your pocket!
Caution: Getting a bond is a fairly adult thing to do. Given the fact that repaying a bond will be one of the biggest financial commitments you will ever make, you will want to think long and hard about your current needs, your medium term situation as well as your budget and job security before applying for bonds.