Home Loan - Available Amounts

[Sicilian-Najdorf]

Hi All
Hoping to get some clarity on this....

I have 2 properties both still bonded and I've had both for about 5 years
Because of interest rate drops, I've collected a sizeable amount in each of them as "available". I opted from the very beginning that my installment never goes down if/when the interest rate drops.
I somewhat understand that this will essentially mean that I pay off the bonds sooner than the original 20 years - Correct?
What I'm struggling to understand is.....

• Can I safely use this money if I ever need to and not have it affect the original 20 year contract?
• Do I need to contact the bank(s) to make it that it is actually paid off sooner? I've read the word capitalize when googling around.

The bonds are with Absa & Nedbank if that helps.

Please help me understand this.


Thanks

 

[zerocool2009]

Hi All
Hoping to get some clarity on this....

I have 2 properties both still bonded and I've had both for about 5 years
Because of interest rate drops, I've collected a sizeable amount in each of them as "available". I opted from the very beginning that my installment never goes down if/when the interest rate drops.
I somewhat understand that this will essentially mean that I pay off the bonds sooner than the original 20 years - Correct?
What I'm struggling to understand is.....

• Can I safely use this money if I ever need to and not have it affect the original 20 year contract?
• Do I need to contact the bank(s) to make it that it is actually paid off sooner? I've read the word capitalize when googling around.

The bonds are with Absa & Nedbank if that helps.

Please help me understand this.


Thanks

Banks to banks differ, but in short, if its available you can eft out, and your debit order will be adjusted up immediately!

 

[zerocool2009]

Related to paying it off, just pay it up and leave it open. Its a nice 911 emergency fund

I am owing R0 on my bond for 13 years now!

 

[Jehosefat]

Hi All
Hoping to get some clarity on this....

I have 2 properties both still bonded and I've had both for about 5 years
Because of interest rate drops, I've collected a sizeable amount in each of them as "available". I opted from the very beginning that my installment never goes down if/when the interest rate drops.
I somewhat understand that this will essentially mean that I pay off the bonds sooner than the original 20 years - Correct?
What I'm struggling to understand is.....

• Can I safely use this money if I ever need to and not have it affect the original 20 year contract?
• Do I need to contact the bank(s) to make it that it is actually paid off sooner? I've read the word capitalize when googling around.

The bonds are with Absa & Nedbank if that helps.

Please help me understand this.


Thanks

To answer your questions:

• If it is flagged as available then yes, you can withdraw it at aby time and not impact the 20 year profile.
• No, any extra that you pay in is offset against the total amount owing. You only need to capitalise it if you want to reduce your monthly payments (but then the amount will no longer be available).

 

[Sicilian-Najdorf]

Banks to banks differ, but in short, if its available you can eft out, and your debit order will be adjusted up immediately!

Thanks
I don't get why my debit order will be adjusted if it's money that was paid in over and above my repayment amount.

 

[Sicilian-Najdorf]

To answer your questions:

• If it is flagged as available then yes, you can withdraw it at aby time and not impact the 20 year profile.
• No, any extra that you pay in is offset against the total amount owing. You only need to capitalise it if you want to reduce your monthly payments (but then the amount will no longer be available).

Thanks
In my case, I've opted that my installment stay the same irrelevant of interest rate drops so what would capitalizing do in my case? Or are you talking about the minimum installment amount required to be honoring my contract?

 

[Sicilian-Najdorf]

Thanks all
So taking from the available will not affect my outstanding amount?
Also, why do I only see the interest amounts on my statement? How much of my debit order goes towards paying off the capital?

 

[zerocool2009]

Thanks
I don't get why my debit order will be adjusted if it's money that was paid in over and above my repayment amount.

I think you missed my question. Lets say you owe now R0 and you take out R100 000, and the debit order is now R0 and your monthly fee is R65. You need to pay back the R100 000 in the remaining months

 

[Sicilian-Najdorf]

I think you missed my question. Lets say you owe now R0 and you take out R100 000, and the debit order is now R0 and your monthly fee is R65. You need to pay back the R100 000 in the remaining months

What I am missing I think is if I leave the money and let it pile up - Will my bond be paid off sooner without even having to contact the bank or will I be in a situation where at the end of the 20 years, there will be a bunch of available cash there?

 

[Jehosefat]

Capitalising would adjust your monthly payment down so that it would take the remainder of the 20 years to pay off what you currently owe. But by doing that you would lose access to the available amount because it basically resets that to 0.

Withdrawing any of your available amount will increase your outstanding amount by exactly the amount that you withdraw.

Your statement should have an Interest transaction and a Payment transaction as well as capital balances (usually after each transaction). The interest is the amount of interest that has accrued on your outstanding amount/capital balance since your last payment date. The amount of your payment that "goes towards" the capital amount is (Payment - Interest).

 

[Jehosefat]

What I am missing I think is if I leave the money and let it pile up - Will my bond be paid off sooner without even having to contact the bank or will I be in a situation where at the end of the 20 years, there will be a bunch of available cash there?

Yes, your bond will be paid off sooner. At the end of the 20 years your available amount should be 0 regardless of the actual payment profile that you have applied prior to that point. To be technical, the available amount is the difference between the current capital balance and the amortisation profile of the loan (meaning that the available amount is the difference between what you actually owe the bank at that point in time and the amount that you would have owed them had you only made the contractual payments up to the same point).

 

[zerocool2009]

What I am missing I think is if I leave the money and let it pile up - Will my bond be paid off sooner without even having to contact the bank or will I be in a situation where at the end of the 20 years, there will be a bunch of available cash there?

No need to contact the bank. You will save on interest, meaning your debit order will eat more of the outstanding amount in time.

Once its paid off, keep it open. And if it expires in 20 years, just reset the period, and you will have a new paid up bond to use for the future if needed

 

[Sicilian-Najdorf]

Thanks all
Here's what makes me worried about that available balance....

Looking at my statement this month:

Debit order going into the bond: R6500
Interest: R5500
Admin Fee: R69

R6500 - R5500 - R69 = R931

R931 is exactly what my available amount increased by.

So my worry is, why is nothing going towards capital? By taking money from the available am I not affecting my capital balance?

What am I missing here?

 

[zerocool2009]

Ok, let me explain how FNB works in short.

Lets take your example above

Once the debit order goes off, after 7 days, you can borrow against the R6500 again

So, do this, pay R1000 extra ... and your available should be R931 and R1000

 

[Sicilian-Najdorf]

Also, if I take the current balance and add the available balance - It equals exactly the amount I bought the place for. I would think that after 5 years, this would not be the case.

 

[Jehosefat]

Also, if I take the current balance and add the available balance - It equals exactly the amount I bought the place for. I would think that after 5 years, this would not be the case.

That sounds about right. A lot of banks will allow you to draw back up to the original limit for the first 5 years or so.

What you pay over and above the interest amount and fees reduces the capital balance (for every bond ever). How the available balance is impacted depends on the way the access facility on your particular bond works (and this can differ between banks).

Usually the way it works is that in the background the bank will calculate a "limit profile" which is the amount that you can draw up to at each point in time for the life of the bond. Your available amount, at a certain point in time, will be the difference between your capital balance at that point in time and the limit profile at the same point in time. What differs between banks (and sometime between different products at the same bank) is how the limit profile is calculated.

 

[zerocool2009]

Also take note, I have a handful of bonds. Every BOND VERSION differ in rules.

 

[Sicilian-Najdorf]

That sounds about right. A lot of banks will allow you to draw back up to the original limit for the first 5 years or so.

Will THIS affect my loan term negatively?

 

[Sicilian-Najdorf]

I called NedBank now to speak to a HL specialist
She says that my bond installment is in fact linked to the interest rate now so my debit order is exactly the minimum amount that is required. I have no idea when they changed this...

So now, my question is - Why is my available increasing if I'm paying exactly the minimum required?

 

[Jehosefat]

Will THIS affect my loan term negatively?

No, legally the bond will only exist for 20 years. If you draw back up to the full amount, your monthly instalments will increase though since you now have to pay off the same amount at the same interest rate but over a shorter period of time.