How I paid off my bond in 5 years and how you can too – part 4

Here’s part 1 which lays the foundation and mindset stuff, here’s part 2 which is the start of all the practical steps, and here’s part 3 with some more steps and one which may be too woo-woo for you 🙂

And now for the numbers. I’ll promise to keep this short just in case you feel like stabbing yourself in the eyes round about now 🙂

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  1. Paying the bond

If you look at amortisation calculators on any of the banks’ or mortgage originators’ sites, you’ll be able to see that you’re basically paying off interest for much of those 20 years. Only a tiny amount of each of your repayments goes toward the capital while most of it pays interest.

I did a quick calculation. On R1 million, your monthly repayment is R9983 (at 10.5% interest). The majority of that payment only swings towards your capital in month 162 (13 and a half years into paying off your bond of 20 years).

Scary stuff.

So the quicker you can start paying off that interest, the better.

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How to do this

The minute your bond is registered, make a payment. Preferably the entire bond amount but any amount will do.

Our bond was registered on 5 July. I had some problems with them linking the new account to my profile but it was finally linked a week later and we paid the entire bond payment immediately even though the bank only required the first payment on 1 August. Those two weeks meant that the payment was applied mostly to interest.

If you’re paying off your existing bond, do your best to put aside as much money as you can and pay it on the 14th of every month. Right now things are a bit…. tight…. but we could afford a small extra payment (due to rounding up) so I put a scheduled transfer on my bank account for the 14th of every month for that amount.

If we do nothing else but this tiny extra payment, we cut 4 years off our bond.

Did you get that?

If we do nothing else but this tiny extra payment, we cut 4 years off our bond.

If we get to the point where we have half a bond payment extra every month, we reduce the term to 8 years, and if we work up to doubling our payment, we pay it off in 5 years.

I can’t wait for my next salary increase to increase that payment 🙂 🙂

This is the slow and steady way but that’s not really my style. I’m believing for much bigger results, like I shared in the last point of this post.

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If you’ve been paying only exactly what your bank requires, then here’s what you need to do:

Diarise to get a statement at least every 3 months.

If you do your main banking with the same bank who granted your loan, then make sure your profile is linked, and actually look at your statement at least every 3 months, and if you’re now obsessed because of my posts, then make it a part of your monthly review.

Here’s something else that is small but practical to do.

If your bond is R5678 (random number), make a quality decision to find R322 in your budget so that your total payment to X Bank is now R6000 per month. All I did was round up.

Now go to your bank’s website and set up a scheduled transfer/ payment to your bond for that amount on the 14th of every month (or 14 days from your scheduled debit order).

If you’re thinking, “how is this possibly going to make a difference?” let me tell you it will.

You’re developing the right mindset of single-minded focus.

You’re taking action in small steps now but those steps will grow soon.

These days we’re so fortunate to have technology (all the heart eye emojis); when I was obsessed with paying off our first home in the late 90’s, I’d walk to the bank in the CBD every 3 months and get an actual paper bank statement to encourage me in my efforts. Now I just log into the app and I can easily see the reducing balance.

How is all of this resonating with you? Does it feel like too much hard work? Do you feel overwhelmed? Let’s talk.

This is the final of the official posts. I so hope this was valuable to some of you out there. Please let me know to encourage me too.

Next time up I’m answering questions so let me have them.

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Comments

  1. No bond on this end. But so a way I need to think about paying off my studies and other debt.

  2. Terisha says:

    You shocked me with those stats. I didn’t realise a little extra could reduce the term by 4 years. Going to definitely look more into this.

    • Marcia Francois says:

      Exactly – go play around with the calculator. Even a little bit extra makes a difference, and yes, the goal is to increase that, but anything is better than nothing (as in life :))

  3. ok so let me check that I understood correctly – we need to pay the difference of the bond repayment and the round up number (ie the 322 in your example) only on the 14th and then build that amount up? I was also shocked to hear that a small amount paid in the middle of the month can cut so much off a bond! That’s massive!

  4. I went to a Stewardship course at church and when he shared on how paying in a bit extra on a certain date in the month made such a big difference, it blew my mind! Great tips!

  5. Hmmmm I didn’t know that about paying the extra amount during mid month for example made a big difference. Wow!! And now I need to go read the other posts

  6. We’ve always paid off more than the minimum amount and we reaped the rewards on our old flat when we sold and made such a good profit so we’ve been doing the same on our current house. Also, seeing as we have an access bond, any extra money i.t.o. bonus’s, shares paying out go straight in to the house. Unfortunately, we’ve touched on that money before, but this year has been a good one and we’re being much more focused 🙂 Do you have or know of a calculating tool that can help work out what the extra difference makes by any chance? Also, the paying 14days before is all well and good, but we don’t have that money 🙁

    • Marcia Francois says:

      Jodie, I’ve used Ooba’s one, FNB’s and Nedbank’s tools in the past. Whichever pops up first when I’m googling…. and they all work well.

  7. Now THIS is something that I can do. Thank you for this tip.

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