Home Loan - Available Amounts

[zerocool2009]

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?

Because you can borrow against the debit order again if you want

 

[Sicilian-Najdorf]

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.

Ok thanks - This I understand

 

[Jehosefat]

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

Like I said, often they let you draw back up to the initial amount for the first few years so each payment decreases the capital balance but the amount you can draw up to remains the same, hence the increasing available balance.

 

[Sicilian-Najdorf]

Because you can borrow against the debit order again if you want

I get this because with my Absa bond - The debit order amount hangs around there for 24 hours before it goes away.

With Nedbank this doesn't happen.
Debit order goes off and immediately goes into the bond with a portion going into the available amount.

I still don't get what portion of my Nedbank bond is going towards capital.

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.

Nothing towards Capital?

 

[zerocool2009]

Ok, in my case, my monthly debit order gets recalculated daily, as per the NCA rules, and it decreases by R5 roughly

Also take into consideration, not ALL flexi's have the FULL value available, as you need to apply via the bank for the FULL amount if needed. That is why I said there are different versions (as time goes by and how product managers design the products)

 

[Jehosefat]

So to illustrate, I made the below graph:

The assumptions that I have made are:

• R1,000,000 loan
• 240 month repayment profile
• Interest rate of 6%
• Limit remains flat for first 60 months then amortises (at same interest rate)
• Additional Payments of R500 per month are made for the "Additional Payments" items.

The available amount is simply Limit - Balance.

 

[Jehosefat]

I get this because with my Absa bond - The debit order amount hangs around there for 24 hours before it goes away.

With Nedbank this doesn't happen.
Debit order goes off and immediately goes into the bond with a portion going into the available amount.

I still don't get what portion of my Nedbank bond is going towards capital.

As I have said before a few times, Payment - Interest - Fees goes towards your capital balance. This is true for every mortgage bond (technically for every type of debt under the NCA).

How your available amount changes per payment is product and bank dependent and is related to capital balance but is also driven by your limit which the bank usually doesn't explicitly publish.

 

[Sicilian-Najdorf]

As I have said before a few times, Payment - Interest - Fees goes towards your capital balance. This is true for every mortgage bond (technically for every type of debt under the NCA).

Thanks
This makes sense
I have requested Nedbank to go into my profile and to give me a complete rundown of exactly what is happening.
Since in my case, my Nedbank bond is now directly linked to the interest rate, I would like to know why the amount left over after Payment - Interest - Fees goes to available and not capital and I requested that they change that. I don't want to have money available that in my mind should be reducing capital.

My Absa bond doesn't behave this way though.
The amount left over after Payment - Fees - Interest - A piece for capital goes into available.

 

[PhreakBoy]

Calculate the interest on the opening balance at your interest rate and see whether it was calculated on the capital amount or the capital amount less the available balance.

 

[Sicilian-Najdorf]

Calculate the interest on the opening balance at your interest rate and see whether it was calculated on the capital amount or the capital amount less the available balance.

Thanks

That being opening balance x my interest rate / 12 ?

 

[PhreakBoy]

Thanks

That being opening balance x my interest rate / 12 ?

Yes, or opening balance x my interest rate / 365 * number of days in month.

There will still be a small difference as I think interest on bonds is calculated daily.

 

[Jehosefat]

Thanks
This makes sense
I have requested Nedbank to go into my profile and to give me a complete rundown of exactly what is happening.
Since in my case, my Nedbank bond is now directly linked to the interest rate, I would like to know why the amount left over after Payment - Interest - Fees goes to available and not capital and I requested that they change that. I don't want to have money available that in my mind should be reducing capital.

My Absa bond doesn't behave this way though.
The amount left over after Payment - Fees - Interest - A piece for capital goes into available.

You are missing the point. On both of your bonds the total value of (Payment - Fees - Interest) reduces your capital balance. It's illegal for it not to. What is different between the two bonds is how the limit is behaving. In the Nedbank case, your limit is static therefore 100% of the capital balance reduction is available. Your ABSA bond has an amortising limit so your capital balance decreases but the limit also decreases (by a smaller amount) so your available amount goes up but not by the full value of the capital reduction.

E.g. Nedbank bond:
Balance at start of month: 700,000
Limit at start of Month: 750,000
Available at start of month: 50,000
Interest: 5,500
Fees: 69
Payment: 6,500
Balance at end of Month: 699,069
Limit at end of month: 750,000
Available at end of month: 50,931

ABSA bond:
Balance at start of month: 700,000
Limit at start of Month: 750,000
Available at start of month: 50,000
Interest: 5,500
Fees: 69
Payment: 6,500
Balance at end of Month: 699,069
Limit at end of month: 749,500
Available at end of month: 50,431

As you can see, the capital balance is the same and changes in the same way in both cases. It is the limit's behaviour that is affecting the available amount's behaviour.

 

[Sicilian-Najdorf]

You are missing the point. On both of your bonds the total value of (Payment - Fees - Interest) reduces your capital balance. It's illegal for it not to. What is different between the two bonds is how the limit is behaving. In the Nedbank case, your limit is static therefore 100% of the capital balance reduction is available. Your ABSA bond has an amortising limit so your capital balance decreases but the limit also decreases (by a smaller amount) so your available amount goes up but not by the full value of the capital reduction.

Thanks - Putting it this way makes more sense to me.
Is one generally better than the other? Static vs Amortising

Maybe I'm still missing something but isn't it a bad idea to have an available balance some of which is actually towards capital?

 

[Jehosefat]

Thanks - Putting it this way makes more sense to me.
Is one generally better than the other? Static vs Amortising

Maybe I'm still missing something but isn't it a bad idea to have an available balance some of which is actually towards capital?

Usually the limit is only static for a period before it starts to amortise. The banks could get in trouble with the NCA if it didn't (large drawdown right near the end of the term could push the payments over the NCA payment to income limit). And honestly it makes no difference if you don't withdraw it. It's like asking if a bigger or smaller limit is better on your credit card. And the answer is: if you don't use it, it doesn't matter.

Yeah, you are still missing something. Available balance is nothing more than the difference between your limit and your capital balance. That is literally the definition. It's not a separate "balance". There is no "split" of payments between them. The reason that your available balance goes up when you make a payment is because your capital balance is coming down. That is the only reason that it goes up. It's not because some of your payment is being "allocated" to available balance. It is 100% caused by your capital balance going down. The only reason that the available balance might increase less than your capital balance decreases is if your limit also decreases.

It might help to think of the available balance like a credit card. You only have to pay back the bit of it that you use (and you will pay interest on any part of it that you withdraw as well). If you don't use it, it costs you nothing.

 

[Sicilian-Najdorf]

So I called Nedbank again and had a long conversation with them regarding all of this.
I explained how my Absa bond works.

According to them, there is a glitch on my bond profile as it's supposed to work exactly the same as how I described my Absa bond.

They said that I should not have access to the full capital reduction amount from the day my bond repayment became linked to the interest rate. So if I understand correctly, it should have been amortizing from the day my bond became linked to the interest rate and I should only have access to whatever is paid in above and beyond the fees + interest + capital reduction amount for that month.

Initially the bond behaved exactly the same way as the Absa bond.
The repayment was made up of fees + interest + capital reduction amount and all was good.
Then the interest rates dropped and the available balance started accumulating.

At some point my bond was switched to reduce the repayment amount when the interest rate dropped which it then did but the available balance was still accumulating for some reason by the exact amount that was meant to have gone off the capital.

Also, the "limit" that has been spoken of - Nedbank says that according to the timeline of my bond in particular, it isn't right at all.

NOTE: This is a paraphrased version of what Nedbank explained to me.

A call has been logged for them to investigate.

 

[zerocool2009]

Glad you got answers!

 

[Sicilian-Najdorf]

Glad you got answers!

Thanks

I think where my huge confusion on this matter came in was with the difference between having access to prepaid and repaid funds.
I don't want access to repaid funds (Money paid towards capital)
I only want access to whatever is left of my repayment after capital has taken its bite.