No matter whether mortgage bond rates are one or two percent higher or lower, borrowing against your home loan is some of the cheapest money around for the ordinary individual.
All other market rates are higher. You can borrow at lower interest rates from an employer or from a retirement fund but there are tax and other implications in this.
Not only are mortgage bonds one of the better places from which to borrow money, they are also one of the most tax efficient vehicles for short-term savings plans.
If you put R10 000 into a bank deposit you can currently earn around 16 percent in interest. So over one year you will receive R1 600. If this is the only interest you earn there will be no tax implications as you are allowed to earn R2 000 in interest in a year, tax free. But after R2 000 you pay your marginal rate of income tax, which starts at 17 percent and ends at 45 percent if you earn R100 000 or more a year.
So if you have interest earnings of more than R2 000 it pays to put your money into your bond because you are effectively earning at least 18,25 percent (the best variable mortgage bond interest rate generally available) tax free.
However, this is not at the moment the best form of long term savings. Unit trusts and many endowment policies have provided a far better rate of return in recent years.
A word of warning: you cannot use a mortgage bond account for daily financial transactions. There are limits to the number of withdrawals. On the borrowing side the prime bank borrowing rate at the moment is 19,5 percent. Most people pay at least two to three percent more.
Obviously you cannot run up endless debts on your bond and there are limits set by the banks. By paying a little extra into your mortgage account every month you give yourself leeway in case of emergency.
It's for this reason you should never close off a bond completely - you never know when you'll need to borrow. If you are one of those fortunate enough to have paid off your bond, keep a debit balance of R10. There is no interest payment and if you need to borrow money, it is readily available, without having to pay legal costs for the registration of a new bond.