How To Use Your Bond As A Financial Resource

In the midst of the property boom in South Africa a powerful way of leveraging one's bond is often overlooked. This is that you can use the bond to consolidate debt, and in this way pay less interest on other credit arrangements. Bond interest rates are lower than credit card and hire purchase methods, so moving all debt into the bond can save a significant amount of money. With bond interest rates at the lowest level in years, this is an excellent time to take advantage.

Debt consolidation is a way to take control of your finances, and to mitigate against the debt cycle inherent in the constant use of other credit facilities. If you have paid off a fair amount of your bond, you can borrow the money back, up to the bond limit, and use it to pay off all higher interest debts. From then on all debts are serviced at the same interest rate, which is lower than that of the original debt. An easy way to see how much this will benefit you is to count up all the interest you pay on your various accounts and compare this amount to the interest you pay on the same amount in your bond.

You need to realise, however that, as with any debt, there is a price to pay for debt consolidation. The most immediate impact will be that your monthly bond repayments will go up. You will also end up paying more over the long-term, which may seem obvious, but essentially means that it will take you longer to pay off your house. The time depends on how much extra you have borrowed. If for instance, you had already paid off half of your bond and then borrow it all back, you will be extending your current bond repayment period by another 50%, which is certainly not trivial.

The other thing to realise is that re-accessing your bond corrodes the investment value of your property, and can devalue your largest asset in the long-term. While the debt consolidation aspect is an advantage, you need to resist the temptation to continually rebond your property.

How To Use Your Bond As A Financial Resource

3/7/2008 4:04:56 PM