‘New buyers concerned about affordability when applying for a bond may consider a fixed interest rate rather than a variable rate given the concerns about inflation and muted economic growth.’
Home purchasing can seem stressful, but it does not have to be.
There is a lot of help on offer and information that can help you make an informed decision.
Getting a bond for your home can help you plan the entire home-buying process, which will relieve stress.
Bradd Bendall, national head of sales at BetterBond South Africa, explains how your bond can provide peace of mind.
Factors that make home bond appropriate
Bendall says the year has started on a positive note, with a repo rate cut and hopes of another cut later in the year.
However, economists have cautioned that global uncertainty, including the impact of US President Donald Trump’s policies, could temper the rate-cutting cycle later in the year.
He quoted South African Reserve Bank Governor Lesetja Kganyago saying, “In the near term, inflation appears well contained. However, the medium-term outlook is more uncertain than usual, with material risks from the external environment. Domestic factors such as administered prices are also problematic.”
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Housing market
“It bears noting that the housing market has shown strong signs of a recovery in recent months.
“Notwithstanding last year’s restrictive monetary policy, BetterBond reported a 6.6% year-on-year growth in home loan applications and an 8.1% increase in home loans granted.”
In its latest property barometer, FNB is cautiously optimistic about the market outlook.
It projects that house price inflation will climb from the current 0.9% to 1.7% this year, followed by a gradual acceleration to over 3% by 2026.
Five ways in which Home Bond can provide peace of mind
He adds that the best way to navigate uncertainty is by focusing on aspects of your bond that can provide security or peace of mind.
1.Secure a more favourable interest rate
Bendall says that if you are buying a home in 2025, it is advisable to apply to more than one bank to improve your chance of securing a more favourable interest rate.
“A bond originator will approach more than one bank on your behalf to secure the most favourable lending rate. Banks will grant concessions depending on a buyer’s risk profile.”
He adds that applying to more than one bank also improves the chances of bond approval.
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2.Opt for a fixed rate
Bendall says that a fixed or variable rate depends on a buyer’s financial status and budgetary needs, as with any financial decision.
Unlike a variable interest rate, a fixed interest rate remains unchanged regardless of the Reserve Bank’s changes to the prime lending rate.
“New buyers concerned about affordability when applying for a bond may consider a fixed interest rate rather than a variable rate given the concerns about inflation and muted economic growth.
“A fixed interest rate’s appeal is its stability.”
However, the rate is usually much higher than a variable rate because of the risk it poses to the bank. A fixed rate can also only be set for five years.
“You will need to renegotiate, and the prime lending rate could be less favourable than before.
“However, affordability is always a consideration when buying a home, and setting a fixed rate may provide a buyer with much-needed predictability to budget accordingly.”
3.Pay your bond earlier in the month and save on interest
He says if you are a current homeowner, the earlier in the month you pay your bond, the less interest you will accumulate over the loan period.
“You could also split your monthly bond instalment, paying a portion on the last day of the month and the balance on the 15th – to save on costs.
“Although the full amount will be paid within the 30-day period, the interest which is calculated daily will be reduced.”
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Bendall says current homeowners who pay more into their bonds now, while interest rates are in a downward cycle, could save on interest over the long term and significantly reduce their loan repayment period.
“For example, on an R2 million bond at a prime lending rate of 11%, an additional payment of R1 000 a month would save R500 835 in interest and reduce the 20-year loan period to just over 17 years.
“The best time to pay extra on your bond is during the first 10 years, as this is when the bulk of your payment goes towards the interest.”
5.Renegotiate your bond terms
He adds that some banks may renegotiate their interest rates and extend the loan repayment term if the bondholder could save on interest over the long term and significantly reduce their loan repayment period.
“Bear in mind that while a longer bond repayment period could lower the monthly repayments, it could add interest to the overall bond amount.
“This option requires a formal request to the bank and is usually only granted in exceptional circumstances.”
