Bond, Bankrupt Bond: The costs associated with bonds
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.
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 involved in the act of buying a property are not that high.
Registration, initiation, and conveyance fees serve as bond charges you can expect to pay. They join value added tax as the principal bond fees.
The fees are covered, but should exceed a rate of more than 3% of the total cost of the property. If the property appreciates in value like it should, the cost will be recovered within the first year or so.
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.
When you sell the property within five years you may be staggered to learn that you still owe hundreds of thousands of dollars. The reason is you paid off a lot of interest but still owe a large portion of the principal. Only sell the property early if you figure to make a huge profit on the sell.
The bank also must find ways to cover a large bond. Often they borrow from a central bank. If the small, more local bank hits a rough patch, it will request some relief from the central bank. The central bank may allow the bank to enter a "grace" period with the bond, which means they will pay principal and no interest for a pre-defined amount of time. This does not come without penalties though.
The formula is easy. Stay away from James Bond. Think with your head and not your feet. Do not make rash decisions when dealing with property. Make sure you plan on a longer term future and not a quick fix.
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 involved in the act of buying a property are not that high.
Registration, initiation, and conveyance fees serve as bond charges you can expect to pay. They join value added tax as the principal bond fees.
The fees are covered, but should exceed a rate of more than 3% of the total cost of the property. If the property appreciates in value like it should, the cost will be recovered within the first year or so.
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.
When you sell the property within five years you may be staggered to learn that you still owe hundreds of thousands of dollars. The reason is you paid off a lot of interest but still owe a large portion of the principal. Only sell the property early if you figure to make a huge profit on the sell.
The bank also must find ways to cover a large bond. Often they borrow from a central bank. If the small, more local bank hits a rough patch, it will request some relief from the central bank. The central bank may allow the bank to enter a "grace" period with the bond, which means they will pay principal and no interest for a pre-defined amount of time. This does not come without penalties though.
The formula is easy. Stay away from James Bond. Think with your head and not your feet. Do not make rash decisions when dealing with property. Make sure you plan on a longer term future and not a quick fix.
About the Author:
Graham McKenzie is the content syndication manager at BondCredit.co.za South Africans leading Bond Originator
posted by Credit Counseling at
6:38 AM
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