financial investing


DIY financial investing: Bonds and freedom

Is your bond tying you down?

financial investing


In 1932 Céline wrote his dark novel, Journey to the End of the Night (Voyage au bout de la nuit). Ancient slave drivers had nothing on the modern company, explains the main character. “Did they ever think of calling their slave ‘Monsieur’ or letting him vote now and then?”

It is all very much tongue in cheek, but he does have a point. Modern life offers many conveniences which can easily enslave us. Debt is definitely one of these.

So don’t let your bond tie you down!

Here are a few things to keep in mind:

1. Never borrow money at a certain rate and then invest it at a lower rate. If the yield on your property is 7% and you conservatively estimate 3% growth for the value of the property, then your total return on your investment is 10%. It makes no sense to borrow money at 10,5% in order to buy this property.

2. If you can manage to borrow money at a certain rate and then invest it at a higher rate, then that is a good thing. You are essentially reaping the rewards of investing money you do not have yourself. This is one of the biggest advantages of investing in property.

3. Save diligently in order to have a decent deposit by the time you start looking for a home loan. At least 10% will make both the seller of the property and the banks more open to negotiations.

4. Negotiate very hard when acquiring a home loan. Every 0,1% is important when you consider that you might be paying back your loan for many years. You might consider using a bond originator, but make sure that they do not charge you for their services. You can also go back to your own bank and inform them of the best offer you have had. They will often try to improve on this in order to keep you as a client.

5. Try to pay off your home loan as quickly as possible. This is a very good investment because the interest you save on your loan is usually a lot more than the interest you can earn from depositing your money at a bank. Remember that your monthly required payments stay the same from year to year, except when the interest rates change. So you should be in the position to increase your payment every year if you have an inflation-related increase in your salary. By doing this you should be able to pay your house off in less than 10 years. This is true freedom!

We have now looked at the major aspects of investing in property. Next week we look at a list of small things which might also make a big difference to the success of investing in property.