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Question of the Day: Do you think Bafana Bafana will win tonight?
Adding money to a bond
- Thread starter tRoN
- Start date
Dark Agent
Expert Member
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I will go with Reduce the repayment rate and keeping putting cash into bond. Every 1 year tell them to reduce the repayment rate. This if I am short or a bad month, the repayment is low.
The_MAC
Honorary Master
From a discipline perspective I would rather reduce the term, as not to get tempted.. Also better in case the interest rate goes up.
Keep the installment the same, it is after all part of your budget.
tRoN
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Around 80/20 bond/savings
I would pay the Bond off early without a doubt best thing to do. When the Bond is finished you will then be able to pay a portion of that Bond amount you where paying, into your retirement annuity for a better pension.
itareanlnotani
Executive Member
Keep repayment the same.
The more money you stick into the bond, the faster you pay it off. The faster you pay it off, the less you pay to the bank in interest.
Just because you have a 20 year bond, doesn't mean you have to pay it off over 20 years. Its far better to pay off faster (depending on your finances).
I's also suggest putting your savings in there also, as you said 80/20 split.
Make sure you have an "access" bond if you do so, so that you can grab it back in case of emergency.
The more money you stick into the bond, the faster you pay it off. The faster you pay it off, the less you pay to the bank in interest.
Just because you have a 20 year bond, doesn't mean you have to pay it off over 20 years. Its far better to pay off faster (depending on your finances).
I's also suggest putting your savings in there also, as you said 80/20 split.
Make sure you have an "access" bond if you do so, so that you can grab it back in case of emergency.
+1! on chuck it all into bond, but have facility to dip in when required.
And what is your bond interest rate?
Other Pineapple Smurf
Honorary Master
Reduce the term by one year and keep the balance in the bond for easy access. You will be suprised how little you need in a new bond to reduce by one year as you pay very little of the capital off in the beginning.
Example: using 10.5%
Bond: R 1'000'000
Bond repayment: R9'984 pm
After 1st year you have reduced your capital down to R984,500. You have 19 years left on your bond and want to reduce it by one year to 18 years. You only need to put in R17'500 to do this as this is the amount of capital you would have paid off in your second year.
Now each year the amount you need to put into reduce your payment increases.
The only advantage to paying off capital vs parking your money in your bond is discipline as that money needs to stay there for the lifespan of your bond.
Example: using 10.5%
Bond: R 1'000'000
Bond repayment: R9'984 pm
After 1st year you have reduced your capital down to R984,500. You have 19 years left on your bond and want to reduce it by one year to 18 years. You only need to put in R17'500 to do this as this is the amount of capital you would have paid off in your second year.
Now each year the amount you need to put into reduce your payment increases.
The only advantage to paying off capital vs parking your money in your bond is discipline as that money needs to stay there for the lifespan of your bond.
Archer
Honorary Master
I would do the same, makes a potential bad month less stressful since your commitments are less. It does however require discipline on your part. And if interest rates go up, again your commitment will be less so it's less stressful.
zerocool2009
Honorary Master
If your bond is with FNB (flexi bond), and you change anything on the BOND, you prepaid money isnt available (take note of that), and your interest rate is also reviewed.
Banks are very clever by giving you options but they dont give the full picture
I would say prepay your bond, but leave the bond as is !!!!!
Banks are very clever by giving you options but they dont give the full picture
I would say prepay your bond, but leave the bond as is !!!!!
yup exactly this
SauRoNZA
Honorary Master
What bank is this?
Why do they even ask the question?
The excess should simply reduce the overall interest while it's there and leave you with the option to pull it out if you want to.
Reducing the repayment rate doesn't save you any interest. So it still costs you the same at the end of the day.
Why do they even ask the question?
The excess should simply reduce the overall interest while it's there and leave you with the option to pull it out if you want to.
Reducing the repayment rate doesn't save you any interest. So it still costs you the same at the end of the day.
I would suggest looking at inflation, and what the value of the repayment will be in the grand scheme of things in 10/15 years from now. Then look at compound interest, and make sure you understand it completely.
If done correctly, all the pieces will fall into place and you will see why this is usually the tip given by people that really don't know how to work smart with their money.
HavocXphere
Honorary Master
Eish. So much guessing in this thread. 
You should reduce repayment amount, not term and then keep the actual amount you pay at the current level pre-reduction level. This gets you the best of both worlds - reduced total interest paid while maintaining the safety buffer of low legally enforcable payments (aka when you have a bad month).
Rationale:
You're looking at either reducing the term or the repayment amount. Interest rate doesn't shift either way. Interest amount paid might - this depends on your actual payment patterns, not the projected amort table.
So if you keep the outstanding capital balance consistent between both options (which you will if you go for lower repayment, but maintain the same repayment) then the net effect is the same in terms of total interest paid. However as pointed out above the one option has the very attractive benefit of low "minimum" payment if sht hits fan. Free safety net YAY!
Note: The above logic only holds if your bank allows payments above required amount. If your bank doesn't then you picked the wrong fk'in bank.
Also, the above was written after a glass of wine so do forgive the sketchy explanation.
You should reduce repayment amount, not term and then keep the actual amount you pay at the current level pre-reduction level. This gets you the best of both worlds - reduced total interest paid while maintaining the safety buffer of low legally enforcable payments (aka when you have a bad month).
Rationale:
You're looking at either reducing the term or the repayment amount. Interest rate doesn't shift either way. Interest amount paid might - this depends on your actual payment patterns, not the projected amort table.
So if you keep the outstanding capital balance consistent between both options (which you will if you go for lower repayment, but maintain the same repayment) then the net effect is the same in terms of total interest paid. However as pointed out above the one option has the very attractive benefit of low "minimum" payment if sht hits fan. Free safety net YAY!
Note: The above logic only holds if your bank allows payments above required amount. If your bank doesn't then you picked the wrong fk'in bank.
Also, the above was written after a glass of wine so do forgive the sketchy explanation.
Eish. So much guessing in this thread.
So if you keep the outstanding capital balance consistent between both options (which you will if you go for lower repayment, but maintain the same repayment) then the net effect is the same in terms of total interest paid. However as pointed out above the one option has the very attractive benefit of low "minimum" payment if sht hits fan. Free safety net YAY!
Note: The above logic only holds if your bank allows payments above required amount. If your bank doesn't then you picked the wrong fk'in bank.
it would be nice for you tell us who is guessing, so now we must guess who is guessing and who is not or assume everyone is guessing and you are right?
also the actual benefit is not low potential future bond payments but the fact that you possibly still have access to your prepaid funds if you do not redo the bond schedule.
when things turn sour smaller bond payments going forward from T-zero is not going to have the same effect as having full access to your prepaid funds
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Cius
Honorary Master
The bank wants you to keep the term at 20 years as that maximizes their profit. Its almost always better to pay off faster. I did not realize they bank was making this call on my behalf for the first year or two of my bond. I would shove extra cash in and they would lower my debit order to compensate and keep it at 20 years. After that I went in and fixed the debit order at the max I could afford and ensured it was linked to my internet banking profile so that I can move money in and out easily. Hence if I get a bonus etc I can shove it in the bond until I need it saving a bunch of interest even if I don't plan on leaving it there indefinitely.
Oh the irony...
The only way paying off the bond is not a better option is if you can get guaranteed returns higher than your interest rate. (Or expected returns if you are risk seeking and prepared to gamble)
zerocool2009
Honorary Master
The fact is ... You will get WAY more GUARANTEED with NO FEES if you prepay your bond (That is a FACT)
It all depends what your % on your bond is