Get bond-free before you retire

Anyone approaching retirement or even semi-retirement now should be doing whatever they can to ensure that they will be living in a bond- or rent-free home.

That's the advice from Gerhard Kotzé, MD of the RealNet estate agency group, who says: "The cost of living continues to rise every year, with everything from food to utilities to health services becoming more expensive, which means that many of those living on fixed incomes and pensions are forced to keep lowering their standard of living.

"And the rocketing price of fuel now is set to make things even worse, because it will very likely prompt the Reserve Bank to raise interest rates by more than was expected this year. This will be some small help to those with savings in the bank, but is definitely not a happy prospect for anyone still paying off a home loan."

However, he notes, retirees who own a fully paid-for property will not ever have to worry about having the worth of their pensions or annuities eroded by increases in the home loan rate - or in rent - and may even be able to improve their financial position in future by "trading down" to a smaller, less expensive property.

"This is why it is worth doing everything they can to ensure that their home is fully-paid off while they are still working and earning."

Meanwhile, even those for whom retirement is still some way off can benefit by putting any spare cash into their home loan account right away. This may be difficult, considering that SA households are already spending around two-thirds of their disposable income on debt repayment, but even a small additional amount paid each month can help to reduce the bond repayment period - and the total cost of the property over the life of the bond.

For example, if you have a home loan of R1m repayable over 20 years at the current prime interest rate of 7,5%, an additional R200 a month paid off the capital would reduce the loan term by 13 months, and slice more than R58 000 off the eventual cost of the property.

Alternatively, says Kotzé, any extra amount that homeowners can pay off capital now will reduce the minimum monthly bond repayment due, and that could make all the difference when interest rates go up.

For example, if you could reduce your R1m home loan to R975 000, the minimum monthly repayment due at 7,5% would drop from around R8055 to around R7855 - and if the rate then rises to 8%, it will only go up to around R8155.