Additional Payments into Home loan Account

babyfacek

Active Member
Joined
Jun 30, 2014
Messages
85
#1
I wanted to ask those who are financial savy. The scenario is there is a bond that doesn't have the flexi option and cant get one Atm (complicated story for another day). So additional payments per month of like R2000 will be made into the account. The question is it worthwhile seeing one can't use it for future should it be needed( if not then its fine).

Also just to find out how much did you reduce your repayment years by through putting extra? ( I have used the amortisation calculator, just wanted to find out the real life examples if anyone stuck it out)

thanks
 

justplain

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May 14, 2004
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1,203
#2
paying it off quicker is a good option if you can even if you cannot draw it out again as an access bond.
It will radically reduce the amount of interest you'll be paying over the long term.
Difficult to know everyone's situation. Depends what your current bond is and what you can afford to pay back.
If you can afford to pay in the extra, I'd do that. Having done it on two properties I knocked a number of years off the repayment allowing that money to go towards other things.
 

chrisc

Executive Member
Joined
Aug 14, 2008
Messages
7,090
#3
Some mortgage agreements preclude an additional payment in the first year

Seeing interest is charged on the reducing balance, it makes sense to pay it as quickly as possible. I have never had a mortgage longer than 4 years and waited until I could buy other houses and flats for cash. Offering cash gives you big leverage in getting a good discount.

Here in CT many houses are over-priced yet the seller wants a quick sale. You can often knock 20% off the asking price. If there is still hesitation, offer the seller 1/3 of the price on signing. The money goes into (your) attorney's trust account, so is quite safe and really makes no difference in the end. Its surprising how that offer awakes the avarice in people
 

cbrunsdonza

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Joined
Jun 21, 2008
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13,223
#4
Paid off my other debt first with more expensive interest and then built cash around the house. I've a 3 bedroom house.

My bond is still 20yrs (15 to go) but value of my property has tripled in 5 years based off current prices in my street (lots of sales this year).

My bond is also the rental of a 1 bedroom flat so rather a joke. Will be paying off my car first before tackling the bond.
 
Joined
Aug 8, 2018
Messages
682
#5
I wanted to ask those who are financial savy. The scenario is there is a bond that doesn't have the flexi option and cant get one Atm (complicated story for another day). So additional payments per month of like R2000 will be made into the account. The question is it worthwhile seeing one can't use it for future should it be needed( if not then its fine).

Also just to find out how much did you reduce your repayment years by through putting extra? ( I have used the amortisation calculator, just wanted to find out the real life examples if anyone stuck it out)

thanks
I'm three years into a twenty year bond and by my calculations I've got about five to six years left before I can close it. But in that time I've gotten married and the wife is also contributing which helps.

I work it out using a spreadsheet I designed for the purpose. It's easy enough to do.

BUT I have an access bond. Other than this I have no cash savings, so it currently houses my emergency funding. Before I actually close the bond off I'll have to take time to build up cash somewhere else. If I didn't have an access bond I would likely have still paid more into it but only after I'd built up three to six months' salary worth of savings in a good interest bearing account somewhere.
 

HvRooyen

Well-Known Member
Joined
Aug 14, 2006
Messages
493
#6
... emergency funding. Before I actually close the bond off I'll have to take time to build up cash somewhere else. If I didn't have an access bond I would likely have still paid more into it but only after I'd built up three to six months' salary worth of savings in a good interest bearing account somewhere.
^This^

By all means pay off more than you should, but also keep in mind that shirt happens.
 

3WA

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Sep 25, 2012
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3,992
#7
Yeah, if your bond is not an access bond then it’s nice to have an emergency fund elsewhere that can cover a few months living expenses.
 

SauRoNZA

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Jul 6, 2010
Messages
30,138
#8
If you can afford to put the money away and don’t need access to it then it’s always a good idea.

Every single extra rand in there is saving you whatever your interest rate is every day and as such better than most investment vehicles out there.
 

cbrunsdonza

Honorary Master
Joined
Jun 21, 2008
Messages
13,223
#9
Point being made in the above posts is life happens without warning.

Personally I have had to, without warning, start supporting two adults in the last year. I also had medical emergencies and some other nasty surprises.

Not having access to a cash savings can be a problem. My wife and I thought R10K under the mattress cash (instant access money) was enough until we got hit three times in one month with emergency expenses this year.

We are now rebuilding our savings with a target of R100K where at least R20K will be under the mattress money and the other R80K in my access bond.

Keep in mind that with some access bonds you don't get immediate access or there are times of the month where the bank locks the account for a day or few like my FNB bond around month end.
 

Corvus

Well-Known Member
Joined
Feb 9, 2016
Messages
105
#10
An agent from Remax suggested paying towards the capital amount rather as it will reduce long term interest more effectively.

Google searches on paying towards the capital amount are low as paying towards interest is a more discussed topic.

The basics is that interest is lower on a capital amount of R98 000 vs a capital amount of R100 000.

Downfall is the amount, once paid towards bringing the capital down, is unavailable if ever needed.
In terms of the OP not having flexi access it would be a better option in this scenario.
 

signates

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Dec 8, 2009
Messages
4,142
#11
An agent from Remax suggested paying towards the capital amount rather as it will reduce long term interest more effectively.

Google searches on paying towards the capital amount are low as paying towards interest is a more discussed topic.

The basics is that interest is lower on a capital amount of R98 000 vs a capital amount of R100 000.

Downfall is the amount, once paid towards bringing the capital down, is unavailable if ever needed.
In terms of the OP not having flexi access it would be a better option in this scenario.
What?

Interest is calculated daily and capitalised monthly.

Any extra payments goes against the capital amount outstanding and reduces the interest charged.

Extra payments into a bond either reduces the term of the bond or the normal monthly payment amount and always is against the capital outstanding at the time.

Unless I'm not understanding what you are saying.
 

Zuner

Expert Member
Joined
Aug 8, 2013
Messages
1,695
#12
What?

Interest is calculated daily and capitalised monthly.

Any extra payments goes against the capital amount outstanding and reduces the interest charged.

Extra payments into a bond either reduces the term of the bond or the normal monthly payment amount and always is against the capital outstanding at the time.

Unless I'm not understanding what you are saying.
This, my understanding is the same as yours.
 

Jehosefat

Expert Member
Joined
May 8, 2012
Messages
1,112
#13
What?

Interest is calculated daily and capitalised monthly.

Any extra payments goes against the capital amount outstanding and reduces the interest charged.

Extra payments into a bond either reduces the term of the bond or the normal monthly payment amount and always is against the capital outstanding at the time.

Unless I'm not understanding what you are saying.
I think what he meant is that if you choose to have your monthly repayments adjusted down after you pay in extra, the extra amount that you paid in is then unavailable to be withdrawn. I know that at least 3 of the banks do that if you ask them to recalculate your monthly repayments.
 

signates

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Dec 8, 2009
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4,142
#14
I think what he meant is that if you choose to have your monthly repayments adjusted down after you pay in extra, the extra amount that you paid in is then unavailable to be withdrawn. I know that at least 3 of the banks do that if you ask them to recalculate your monthly repayments.
No. He specifically says paying towards the capital amount.

All payments into the bond goes against the capital amount at the date of payment. Interest is accrued on the daily capital balance and added(capitalised) to the capital amount monthly. The capital balance in the bond at any time consist of initial loan amount + capitalised interest + fees - payments received. The interest not yet accrued on the bond does not sit in a separate account.

You can however let the bank know how they should treat future debit orders if additional payments into the bond are made.
 
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