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.
Statistics show that people lose money if they purchase and sell property through a bond in the first five years, even if they made profit on the sell. This dilemma derives from the fact that bonds are intended for the long-term and too many people abuse them for a short-term answer.
The actual costs of taking out a bond in relation to the total costs of buying a property are not that high.
Several fees are associated with bonds, which include registration, initiation, and conveyance fees. Value added tax also comes into the picture. Add up all these charges and you begin in some debt.
The fees must be paid, but they should never exceed 3% of the total cost of the property. In return, the property should appreciate, and recover the lost in a year or two.
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.
For example, if I was to sell my house after five years, I would only pay $30,000 out of a total of a $600,000 bond; I would still owe $570,000 plus interest. Not a good investment at all. Never sell early unless the owner stands to make a considerable profit that justifies the short term loss.
Like the client borrows from the bank, the small bank also borrows from the primary bank. If the bank falls into hardships, they may request some help from the central bank. The central bank can assist by only demanding principal and no interest for the time being. The central bank defines this as a "grace" period. However the sympathy does not come without justice. The bank still needs to recover the money and will issue penalties that can add up quick.
Costs associated with a bond are relatively low as long as the borrower takes a long term view of property ownership and is able to meet the commitments throughout the duration of the bond.
Statistics show that people lose money if they purchase and sell property through a bond in the first five years, even if they made profit on the sell. This dilemma derives from the fact that bonds are intended for the long-term and too many people abuse them for a short-term answer.
The actual costs of taking out a bond in relation to the total costs of buying a property are not that high.
Several fees are associated with bonds, which include registration, initiation, and conveyance fees. Value added tax also comes into the picture. Add up all these charges and you begin in some debt.
The fees must be paid, but they should never exceed 3% of the total cost of the property. In return, the property should appreciate, and recover the lost in a year or two.
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.
For example, if I was to sell my house after five years, I would only pay $30,000 out of a total of a $600,000 bond; I would still owe $570,000 plus interest. Not a good investment at all. Never sell early unless the owner stands to make a considerable profit that justifies the short term loss.
Like the client borrows from the bank, the small bank also borrows from the primary bank. If the bank falls into hardships, they may request some help from the central bank. The central bank can assist by only demanding principal and no interest for the time being. The central bank defines this as a "grace" period. However the sympathy does not come without justice. The bank still needs to recover the money and will issue penalties that can add up quick.
Costs associated with a bond are relatively low as long as the borrower takes a long term view of property ownership and is able to meet the commitments throughout the duration of the bond.
About the Author:
Graham McKenzie is the content syndication manager at BondCredit.co.za South Africans leading Bond Originator
posted by Debt Consolidation Loan at
8:35 AM
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