The Types of Bonds You Should Know About | Tyson Properties

The Types of Bonds You Should Know About

Like any other significant life event, buying a house is a big deal. Here are the types of bonds to consider to help you make an informed decision today!

What Are Bonds?

Europeans more commonly refer to these loans as “mortgages”. In South Africa, a bond is an amount borrowed against a property for purchase. 

In return for the bank or lending institution granting a bond, the borrower or bondholder must make a monthly payment of interest and capital. Should the bondholder neglect to pay the lender, the property is used as collateral. 

How Does it Work?

The bondholder is required to pay back the home loan with interest over a period of time, and instalments will vary depending on the interest rate fluctuations. 

The first few bond repayments will cover the interest and fees generated from the sale of property, while later instalments will go towards paying off the capital amount of the loan.

The failure to pay back the loan will result in foreclosure, where the lender takes possession of the home. 

Types of Bonds

These are the different types of bonds you will encounter.

Fixed-Rate Bonds

The lender agrees to a bond at a fixed rate for a specific period. If you want to know exactly what to pay each month with no fluctuations, a fixed-rate bond is the way to go!

Variable Rate Bonds

The lender grants the bond at its usual lending rate. This amount can increase and decrease as their lending rates change.

Prime Minus Bonds

The lender agrees to grant the bond at a discount to their usual lending rate. 

Terms of Bonds

South African bonds are typically granted for between five and thirty years. 

Classification of Bonds

South African lenders tend to classify bonds into three areas:

  1. Commercial Bonds: This refers to purchasing an office or commercial premises.
  2. Residential Bonds: This applies to the purchase of domestic properties.
  3. Semi-Commercial Bonds: This include properties with a commercial and a residential value, such as a guesthouse.

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