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Tip: Is paying off your bond really the best way to pay off your bond?

Should you make additional payments to finish paying off your bond sooner? It’s something most of us strive for because it offers financial peace of mind plus acquiring a debt-free property to your name is a big step towards financial freedom.

I am not referring to your monthly bond instalments; those you have to keep paying. What I want to discuss today is whether you must make additional payments in order to finish paying off your bond sooner. It’s something most of us strive for because it offers financial peace of mind plus acquiring a debt-free property to your name is a big step towards financial freedom.

So whether it’s a promotion at work or a pension fund pay-out because you changed jobs – whatever the reason for this additional cash inflow – the question is, is making additional payments to your bond really the best way to pay off your bond quicker? Maybe. Maybe not.

See below example:

Bond details at start

Bond amount

Interest rate

Term of bond

Monthly instalment

R 1 000 000

9% p.a.

20 years

R 8 997

Three years later you have an extra R3 000 per month.


Increase bond payment by R3 000

Outstanding bond after 3 Years

Interest rate

Remaining term

Monthly instalment (after the R3 000 increase)

R 938 384

9% p.a.

17 Years



At this point, by increasing your bond payments by R3 000 per month, you will finish paying off your bond in another 9 Years, 10 months. Therefore in total, it’s taken you 12 Years, 10 months to pay off your bond.



Invest the R3 000 every month (assume growth of 11% p.a.) and continue with the minimum bond payments


After 9 Years, 5 Months of investing, you will have R595 875 available in your investment.

At this point, your outstanding bond will be R591 851

Now, withdraw the money in your investment and pay the bond off.

Therefore in total, it’s taken you 12 Years, 5 months to pay off your bond. That’s 5 months earlier. And you have got an extra R4 000 to celebrate with! ;P



The above is a simple example. Investing is NOT always the best way to go; it depends on several other factors which I have decided to ignore in order to get the point across. The point being that before you decide where to allocate additional funds, take some time to crunch the numbers in order to make a more financially savvy decision. Below is a list of things that I never mentioned in the example and which you need to keep in mind when analysing which option is the best for your personal situation:

  • I have ignored the taxation on the investment returns. This will negatively impact your returns.

  • Depending on your age and your tax bracket, a Retirement Annuity Investment may be a viable investment. With the tax benefits, the returns are so high, that this will be far better than paying off your bond.

  • Remember, in the above example where you finish paying off your bond 5 months sooner, it may not seem that long but you have actually saved R8997 * 5 months = R44,985.

  • The interest rate on the bond plays a big role. I have assumed a 9% interest rate in my example. The higher the bond interest rate, the more likely it is that you should pay off your bond and vice versa.

  • The remaining term of the bond is important. In order to invest aggressively and achieve 11%, you need to be able to invest for 5 years or more. For example, if the remaining term of your bond is only 3 years, I wouldn’t recommend an aggressive investment therefore you can’t expect a return of 11%. In this case, you will probably be better off paying your bond with the extra money.

On a separate note – Planning on taking out a bond to purchase property? Pop me a mail. As a value-add for my clients, I will assist you in arranging a 25%-50% discount on the attorney fees.

Munaf Mukadam

Certified Financial Planner

074 589 6489

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