Shave years off your bond

Oct 04 2012 15:06
buy, house, car, mortgage, saving


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Tips for bond holders

A Fin24 user writes:

My wife and I recently bought a house. We were able to put down a large deposit and only had to apply for a bond of R570 000. We are currently in a position to pay up to double our required monthly bond repayment.
I have two questions concerning this:
1.   Are we able to pay off the interest of the bond before the capital loan?
2.   Will paying the interest first rather than the normal way make a bigger difference?

Leon Naidoo, client solutions manager at Sanlam Personal Finance, responds:

Any extra payment towards your home loan makes a huge difference to the interest and consequently to the total amount repaid. (Calculate your bond here.)

Unfortunately, due to interest being calculated and accrued on a monthly basis according to daily balances, it is not possible to pay an amount towards your interest only.

Note that any amount paid into your home loan account reduces your outstanding balance immediately and this in turn leads to a lower interest amount being charged (as interest is then calculated on the reduced balance).
With reference to your second question, there is no alternative method and you cannot pay interest only, as explained above.
So to summarise, doubling your monthly repayments will lead to substantial savings, not only in interest (rands) but also the repayment term as illustrated in the calculation below:

Please bear in mind that the calculations are based on a prime interest rate of 8.50%. I have also not taken into account any admin, service, insurance or other costs as well as any fluctuations in the prime lending rate.

 - Fin24

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