The Costs Associated with a Bond: Cant I Afford it?
Buying property is always a questionable decision. For starters, land is becoming harder and harder to purchase. There are also the questions of "what will you do with it?" and "do I really need it?" Buying property can come in the form of a bond, which will finance the property for the long-term.
People who buy and sell property within five years lose money. It's an alarming statistic. The main reason is costs associated with buying property derive from a home loan or bond. These loans or bonds are designed for the long-term and not short-term, so when they are sold back quickly, the losses are heavy.
The actual costs of taking out a bond in relation to the total costs of buying a property are not that high.
There are five different bond related charges that will apply every time you purchase property. Which include registration fees, conveyance fees, value added tax, and inflation fees prior to the bond.
However these fees, which are predicted to reach around 3% of the total property cost, are recovered within a year or two assuming your property appreciates.
However you do not get out of the red within a year. In fact, the first third of your bond is mostly dedicated to paying off interest and not principal. So while you think the payments are going to the principal, they are actually eating away at the interest. This becomes another dilemma when you go to sell.
For example, buy property at $600,000 and sell back within five years. If you've only paid $30,000 in principal, which is a likely scenario, you still owe $570,000. Can you cover that?
Like the client borrows from the bank, the small bank also borrows from the primary bank. If the bank falls into hardships, they may request some help from the central bank. The central bank can assist by only demanding principal and no interest for the time being. The central bank defines this as a "grace" period. However the sympathy does not come without justice. The bank still needs to recover the money and will issue penalties that can add up quick.
Costs associated with a bond are relatively low as long as the borrower takes a long term view of property ownership and is able to meet the commitments throughout the duration of the bond.
People who buy and sell property within five years lose money. It's an alarming statistic. The main reason is costs associated with buying property derive from a home loan or bond. These loans or bonds are designed for the long-term and not short-term, so when they are sold back quickly, the losses are heavy.
The actual costs of taking out a bond in relation to the total costs of buying a property are not that high.
There are five different bond related charges that will apply every time you purchase property. Which include registration fees, conveyance fees, value added tax, and inflation fees prior to the bond.
However these fees, which are predicted to reach around 3% of the total property cost, are recovered within a year or two assuming your property appreciates.
However you do not get out of the red within a year. In fact, the first third of your bond is mostly dedicated to paying off interest and not principal. So while you think the payments are going to the principal, they are actually eating away at the interest. This becomes another dilemma when you go to sell.
For example, buy property at $600,000 and sell back within five years. If you've only paid $30,000 in principal, which is a likely scenario, you still owe $570,000. Can you cover that?
Like the client borrows from the bank, the small bank also borrows from the primary bank. If the bank falls into hardships, they may request some help from the central bank. The central bank can assist by only demanding principal and no interest for the time being. The central bank defines this as a "grace" period. However the sympathy does not come without justice. The bank still needs to recover the money and will issue penalties that can add up quick.
Costs associated with a bond are relatively low as long as the borrower takes a long term view of property ownership and is able to meet the commitments throughout the duration of the bond.
About the Author:
Graham McKenzie is the content syndication manager at BondCredit.co.za South Africans leading Bond Originator
posted by Debt Consolidation Loan at
8:35 AM
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