A question about Access Bonds

[Pho3nix]

Hi all,

Disclaimer : On heavy meds so please bare with my ramblings.

Just wanted to confirm their best use model. Rubbish figures below and assuming no other debt

Bond of R1 000 000 @ 30 years. Five years in @ R11k instalment, only 100k paid. Interest added per month is R8k.

You pay R500k into the bond making the outstanding balance R400k.

You’ve done all of the above to make the interest payment R2k instead of the R8k, thus R9k monthly going towards the capital amount.

Hope my thinking is correct so far.

Now when you remove the R500k, after a year the new capital balance is R800k and interest of R8k.

Saving here is that it would have taken another 4 years to kill the R100k normally while you’ve now done so in 1 year?

Is that wherein the benefit lies? Depending on if you selected the correct option specific to this. (Standard Bank varies how they do it depending on your request)

 

[Superjakes]

Hi all,

Disclaimer : On heavy meds so please bare with my ramblings.

Just wanted to confirm their best use model. Rubbish figures below and assuming no other debt

Bond of R1 000 000 @ 30 years. Five years in @ R11k instalment, only 100k paid. Interest added per month is R8k.

You pay R500k into the bond making the outstanding balance R400k.

You’ve done all of the above to make the interest payment R2k instead of the R8k, thus R9k monthly going towards the capital amount.

Hope my thinking is correct so far.

Now when you remove the R500k, after a year the new capital balance is R800k and interest of R8k.

Saving here is that it would have taken another 4 years to kill the R100k normally while you’ve now done so in 1 year?

Is that wherein the benefit lies? Depending on if you selected the correct option specific to this. (Standard Bank varies how they do it depending on your request)

Posted at 11:30 and it shows...

How long would you leave the R500k lump sum in there before withdrawing it again?

For the time that it is in there, assuming you don't adjust your repayment amount, you will repay a much bigger chunk of capital each month, reducing the interest bearing capital portion (R400k) by more than you would if it still was R900k, but I think you do understand that. The trick is to keep paying the original repayment amount (R11k) even though a capital lumpsum would tempt you to pay the new lower adjusted amount (probably R5k or something). If it is R5k, your additional R6k (11k - 5k) would go straight against capital, also reducing your interest portion further every month. So, on top of the interest portion in your normal repayment, the R6k would monthly reduce you capital further - R6k x 12 months (it will be more, as it compounds by nature) will further reduce your R400k capital by R72k (overly simplified).

I hope this makes sense.

 

[Sheppard_za]

Assuming the interest rate remained fixed, no other deductions were made and the repayment amount remained the same. Interest rate was taken as 9.6% compounded monthly (not daily as your interest rate will be at the bank). Initial loan amount R1m, repayment R11k and R500k added at year five and removed 12months later. You will be saving R105 856 on interest and repaying your bond off about a year sooner. Your values don't quite add up though as using this calculation the bond would have been re-payed at year 14 already.

 

[Pho3nix]

Posted at 11:30 and it shows...

How long would you leave the R500k lump sum in there before withdrawing it again?

For the time that it is in there, assuming you don't adjust your repayment amount, you will repay a much bigger chunk of capital each month, reducing the interest bearing capital portion (R400k) by more than you would if it still was R900k, but I think you do understand that. The trick is to keep paying the original repayment amount (R11k) even though a capital lumpsum would tempt you to pay the new lower adjusted amount (probably R5k or something). If it is R5k, your additional R6k (11k - 5k) would go straight against capital, also reducing your interest portion further every month. So, on top of the interest portion in your normal repayment, the R6k would monthly reduce you capital further - R6k x 12 months (it will be more, as it compounds by nature) will further reduce your R400k capital by R72k (overly simplified).

I hope this makes sense.

This was my understanding yes. The R500k would be there for a year

 

[Pho3nix]

Assuming the interest rate remained fixed, no other deductions were made and the repayment amount remained the same. Interest rate was taken as 9.6% compounded monthly (not daily as your interest rate will be at the bank). Initial loan amount R1m, repayment R11k and R500k added at year five and removed 12months later. You will be saving R105 856 on interest and repaying your bond off about a year sooner. Your values don't quite add up though as using this calculation the bond would have been re-payed at year 14 already.

View attachment 1400333

Could you please share your calculation? Most only have money added in but never removed

 

[Sheppard_za]

Do it on excel monthly to add or deduct money.