If you are a homeowner, there is a good chance that you have heard that it is wise to pay extra money into your bond payment. By putting in extra cash, you achieve three things; you pay less interest, you will pay your bond off sooner and you will build an emergency buffer should life throw some curve balls your way.
“While it is ideal to pay more than your instalment into your bond, it may not always be possible due to other demands on your money,” says Steven Barker, Head of Home Loans at Standard Bank. “However, if you receive an annual bonus, use it to make a significant dent in your bond. Let’s assume that you earn R30 000 per month and you get a double cheque less tax. You may be able to invest about R20 000. By adding this to your bond of R 800 000, you would save R104 677 in interest charges and cut 17 months off your repayment period.”
The other smart way to spend your bonus is to renovate your home if it is looking tired. By keeping your home in mint condition, you will not only get the money back if you sell it, but it will also be much easier to sell.
You may also want to consider using your bonus to install energy efficient improvements; these will add to the resale value and decrease your bills while you live there. Consider installing energy saving lights, geysers, or solar panels. While solar is pricey and you may have to add to your bonus money, you will give yourself a buffer against increasing electric prices.
“Basic maintenance type improvements will always yield better results than personalized fixtures and fittings,” says Mr Barker. “It’s no good having new bathroom when you have a leaky roof and damp damaged walls. A well-maintained house helps to preserve and grow your investment”.
“Whatever you decide to do with your end-of-year bonus, make sure that it works for you,” concludes Mr Barker. “While it may be tempting to spend it on gifts and entertainment over the festive season, investing in your home to build your wealth will maximize the impact of the extra cash.”