You're in it for the Long Run: Bond Costs
James Bond has turned into an international icon for his bravery, quick wits, and dangerous actions. While every man wants to be James Bond in one way or another, it's important to not share the same approach when dealing with bonds, although they take after the same name.
The problem begins with the costs associated with buying property and the high risk nature of a home loan or bond. Owning property is considered a future investment, not a quick way to make money.
The actual costs of taking out a bond in relation to the total costs involved in the act 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.
The fees must be paid, but they should never exceed 3% of the total cost of the property. In return, the property should appreciate, and recover the lost in a year or two.
However many people do not consider the minor details and purchase property on instinct. If they sell back within five years they lose a lot of money because you spend the first third of the bond paying back interest and not principal. The result is a lot of money still due.
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?
The bank also fights through bonds sometimes. When they struggle to meet the costs, they may request help from the central bank. Central banks do not like getting smaller branches out of trouble but sometimes it's necessary. If they deem so, they will grant the bank a "grace" period, allowing the bank to pay off principal and little to none interest. The bond has quite the spiraling effect as you may have already noticed.
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.
The problem begins with the costs associated with buying property and the high risk nature of a home loan or bond. Owning property is considered a future investment, not a quick way to make money.
The actual costs of taking out a bond in relation to the total costs involved in the act 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.
The fees must be paid, but they should never exceed 3% of the total cost of the property. In return, the property should appreciate, and recover the lost in a year or two.
However many people do not consider the minor details and purchase property on instinct. If they sell back within five years they lose a lot of money because you spend the first third of the bond paying back interest and not principal. The result is a lot of money still due.
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?
The bank also fights through bonds sometimes. When they struggle to meet the costs, they may request help from the central bank. Central banks do not like getting smaller branches out of trouble but sometimes it's necessary. If they deem so, they will grant the bank a "grace" period, allowing the bank to pay off principal and little to none interest. The bond has quite the spiraling effect as you may have already noticed.
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 Credit Counseling at
7:06 AM
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