Home Loan additional payment

bromster

bromster

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I want to buy a house. I need to take a home loan over 20 years to afford the house I want, but I can afford to pay off the house sooner than that.

How do I go about paying extra every month once I have the home loan? Are there terms and conditions which allow the bank to change the interest rate if I pay more than the agreed monthly installment? Do I need to give notice every month of my intention to increase my payment? Are there any penalty fees involved?

Thanks for the input as always.
 
No you can just pay in extra - the interest calc etc will shift automatically. There shouldn't be any penalties - though I've heard of cases where there is a penalty if its in the first month....doubt thats legal though
 
I've just been paying extra every month have the homeloan linked in my banking profile so its just a transfer between accounts for me. So far every rate increase we've had has resulted in a lower base payment for me. I expect thats because they want to stretch it to the full 20 years still.
 
The only penalties applicable comes if you close the bond without giving them 3 months notice. You can have your bond at zero without any penalties as long as it's still open.
 
Thanks everyone. Are there any tricks to ensure that the additional amount goes towards the principal debt and not towards the interest, or is it automatic?
 
bromster said:
Thanks everyone. Are there any tricks to ensure that the additional amount goes towards the principal debt and not towards the interest, or is it automatic?
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Nope - no tricks. Just push as much cash into it as fast as you can.

edit: actually there is one trick I can think of. Say you take out a loan 1st Jan with first payment being due 31 Jan being R1000. If the cashflow allows then its better to pay 500 on 15th and 500 on 31st. The effect is minor but it is there (just watch bank fees). And obviously dumping the full 1000 in there on the 1st would be even better. Personally I would not implement a split payment though - too much hassle...just stick to the initial rule.

czc said:
I've just been paying extra every month have the homeloan linked in my banking profile so its just a transfer between accounts for me. So far every rate increase we've had has resulted in a lower base payment for me. I expect thats because they want to stretch it to the full 20 years still.
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No keep the loan at the full 20 years. That way if the sht hits the fan you can still pay the smaller 20 year stretched minimum...but can still push in more if your $$$ allows for it.

Thats why I'm confused as to why people insist on the shorter loan terms. Unless you suck discipline wise I'd take the longest available term and pay it as if its the shorter term. Best of both worlds.
 
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Just make sure it's an access type bond in case you need access to that extra cash
 
Sinbad said:
Just make sure it's an access type bond in case you need access to that extra cash
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+1 Yep. Good advice too.

Again very much contingent on discipline though. If you use that access bond to buy a flatscreen then life will not be kind to you. But it can (temporarily) put food on the table for the kids in a worst case scenario and that is exceedingly valuable.
 
HavocXphere said:
+1 Yep. Good advice too.

Again very much contingent on discipline though. If you use that access bond to buy a flatscreen then life will not be kind to you. But it can (temporarily) put food on the table for the kids in a worst case scenario and that is exceedingly valuable.
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Great way of financing things like cars as well. Bonds interest rates are often better than what you'd get on a car loan.
 
I use my access bond as a savings account. All money that I have extra I put in there. You can see the diffrence in intrest every month. And in a 20 year bond a few hundred a month makes a huge diffrence.
 
SauRoNZA said:
Lower interest, but longer loan term.

Doesn't always balance out.
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Well, it's cheaper under the assumption that you're not stupid, and pay what you would've at the higher rate. Otherwise you're completely correct.
 
Just take note that your monthly repayment won't go down every single month if you pay in extra. The monthly repayment only gets revised once a year or whenever the interest rate changes.
 
I have friends who took a bond and then both the wife and the husband did double payments (they both paid half the full monthly amount). This killed their bond in a little over 5 years. And you can imagine what it does to your credit rating.
 
After I've paid in extra money, I phone the bank and request a re-calculation.
This brings down my payment, and I can then afford to pay in even more next month... The result, my home loan was paid off in 4 years.
Just take note, that if you re-calculate, that money cannot be withdrawn out of the loan facility in future.
 
I had an access bond and paid in extra from the first month.

In September I made a lump sum payment to bring the balance to R0. I have left the bond account as 'dormant'. It attracts no fees. If I ever need to access funds I have to give them 24 hours notice to re-activate my bond account.
 
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