When taking out bond financing on your home, you are essentially paying off two loans – not just one. The first loan pays off the capital amount borrowed and the second pays off the interest on that capital amount. Thus, a massive chunk of your monthly bond repayment goes towards paying off the interest, and more often than not the amount you pay back at the end of the loan period may equal or exceed the initial cost of the property. This is because the interest on your home loan accumulates interest of its own – the principle known as compound interest.
This amount can be considerably reduced by investing any additional funds into your bond account. People often wonder what to do with any extra money or capital they may have, and look to financial advisers to find investments to suggest ways to reap the benefits of an exciting or high-yield investment.
Truthfully, one of the wisest investments a homeowner can make is in their own bond account. The overall and long-term savings that can be made by investing any surplus funds in your bond account are far more tangible than investing elsewhere. Obviously the more you are able to pay into your bond the quicker it will be paid off and by extension the more interest will be paid off – saving you a significant amount of money.
Investing in assets like stocks, which carry with them the factor of risk, may only yield an annual dividends of 4-6%, whereas property increases yearly by an average of 6%, and is relatively risk-free. Financial risk is further reduced should you be able to negotiate a fixed interest rate, as your repayment amounts will remain unchanged for that period of time.
By devoting additional capital to your bond repayment you will not only be able to clear your existing debt more quickly but you will also create a pool of savings substantial enough to ensure that you will be able to make more investments in future. Diversifying your investment portfolio should only be a priority once you have managed to pay off your bond or significantly reduced the monthly payments. When you are able to do this, you will definitely be reaping the rewards in the long run.