Turn R10 000 into R50 000 – pay it into your bond
Saying goodbye to that bonus might sting in the short term, but it is, without a doubt, the best way to get the most value from your money.
The festive season is fast approaching and, with all the fun, there is no doubt that Christmas time is one of the worst seasons for budgeting. After a year of interest rate increases and inflation, property owners may already be feeling the pinch.
In fact, for many, the thought of that end of year bonus or 13th cheque may feel like something of a lifeline, a little bit of extra cash to help with the festivities. But is that really the best use for your hard-earned money?
Tony Clarke, managing director of the Rawson Property Group, advises that it tempting to use the extra money for a little luxury here or a better gift there, especially when times are tough. But that momentary satisfaction is fleeting and it does not actually make things any easier in the long term, or improve life in any permanent way.
According to Clarke, the exact opposite is true because when one puts that extra money into a bond, it can actually increase the value of your bonus exponentially.
“All modern bond facilities allow for additional payments above and beyond your monthly minimum. Just a few hundred Rand extra every month can save you tens of thousands of Rand in the long term, and your end of year bonus can have much the same effect.”
To illustrate his point, Clarke uses an example of a bond holder with a home loan of R500 000 at 9.5 per cent interest. The minimum monthly repayments for the loan, based on a 20 year term, would be R4 660.66, which means that bond holder probably earns a salary of around R16 000. Assuming they are lucky enough to get a R10 000 end of year bonus, and decide to put that additional money directly into their bond, that R10 000 could reduce their bond term by as much as a year and save up to R50 000 on their total cost of financing. That’s five times the value of the original lump sum.
“Saying goodbye to that bonus might sting in the short term, but it is, without a doubt, the best way to get the most value from your money. Besides, if you are after Christmas miracles, making R10 000 do R50 000’s worth of work on your mortgage seems like a pretty good start.” Clarke concludes.
For further information visit www.rawson.co.za
