DO NOT ALLOW THE BANK TO ADD ON COSTS

Today’s competition between banks for bond business is very strong. This results in them making various offers to their customers in order to make buying a home easier. This includes adding a variety of costs onto the bond account, rather than asking the customer to pay them in cash. Most people do not have the cash to pay the legal fees and transfer duties, and the adding of these amounts onto the bond is often unavoidable. There are, however, other costs that are occasionally added to a bond account, which should rather be paid in cash. The most common examples are monthly administration fees and homeowners insurance premiums.

If additional items such as the above are going to be debited to your bond account, ensure that your monthly instalment is sufficient to cover them as well as your full loan repayment. Most of us would not be too concerned about a monthly fee of R5 added to our bond. After all, it works out to a total of R1200 over 20 years. However, because of the interest factor, this small extra cost will add 2 months onto the bond term, that’s over R8600 that you will still have to pay at a time when your bond should be settled. It is therefore important that you increase your monthly instalment by R5 to cancel out the effect of the fee.

If the bank allows you to add the annual or monthly premium for your homeowners insurance to your bond, ensure that your instalment is increased sufficiently to cover this amount, as failure to do this could add years to your bond term.