Home loan extra payments

[Friedpet]

I have a home loan at StandardBank and I've made multiple extra payments over the years.
Only today, do I notice on their website that if I don't request it from them, they're not recalculating the monthly payment, but they do, however, recalculate when I withdraw that money. I have never withdrawn any of that money.
Now I want to know:
Should I ask them to recalculate the monthly payments? And why would I want to?
When they recalculate the monthly payment (either from me withdrawing money or from me requesting them to) will they also change the interest rate of the loan?

I want to start using The AccessBond facility of the loan as a "savings account" for my emergency fund.

 

[Dr Who]

If possible never get the payments recalculated. Its a great way to save extra. If you put extra funds into the access portion of the bond and you select the recalculate option then you term will not reduce. You will technically pay less interest, but ideally you want to keep you payments as high as possible.

My suggestion is put it all in and use it as a savings, instead of reducing payments take money out if need be.

 

[Bighit]

I remember this when paying off my student loan - I'd pay extra and then the monthly payment wouldn't come down but the term would decrease. So I had to call them and ask them to "re-capitalize" or "capitalize" the payment so that the monthly amount would be reduced.

 

[Friedpet]

Great, thanks. Still, one question needs answering before I dump all my savings into my home loan: Will my term/interest rate change when I make a withdrawal?

Sounds like it might be a good idea to recapitalize every once in a while (e.g. yearly):
I pay a fixed amount every month (~15% more than I should)
Payments will reduce, the % that I pay extra will increase. Technically then the loan should be paid off quicker. Too complicated for my mind. Anyone know of a calculator? Or anyone that can do the math to prove if it's worth it?

 

[czc]

The interest does decrease though.

I've also made extra payments into my standard bank homeloan. Every time the interest rate is changed they do see to recalculate the term. So thus far every time the SARB has increased the repo rate my monthly payment has decreased.

 

[Pho3nix]

I have a home loan at StandardBank and I've made multiple extra payments over the years.
Only today, do I notice on their website that if I don't request it from them, they're not recalculating the monthly payment, but they do, however, recalculate when I withdraw that money. I have never withdrawn any of that money.
Now I want to know:
Should I ask them to recalculate the monthly payments? And why would I want to?
When they recalculate the monthly payment (either from me withdrawing money or from me requesting them to) will they also change the interest rate of the loan?

I want to start using The AccessBond facility of the loan as a "savings account" for my emergency fund.

You can ask them to recalculate it and give you a quote off how much it would be. You then decide if you'll take the new installment and carry on paying the "old" installment as it were.

 

[Friedpet]

The interest does decrease though.

I've also made extra payments into my standard bank homeloan. Every time the interest rate is changed they do see to recalculate the term. So thus far every time the SARB has increased the repo rate my monthly payment has decreased.

Interesting. My monthly payment increased (extra payment % decreased), my term is still 240 - months paid.

You can ask them to recalculate it and give you a quote off how much it would be. You then decide if you'll take the new installment and carry on paying the "old" installment as it were.

Yeah, I'll probably end up doing that.

 

[czc]

Interesting. My monthly payment increased (extra payment % decreased), my term is still 240 - months paid.



Yeah, I'll probably end up doing that.

Lol, sorry yeah the term stays the same, they recalculate to keep to the term.

 

[Greg C]

I have a home loan at StandardBank and I've made multiple extra payments over the years.
Only today, do I notice on their website that if I don't request it from them, they're not recalculating the monthly payment, but they do, however, recalculate when I withdraw that money. I have never withdrawn any of that money.
Now I want to know:
Should I ask them to recalculate the monthly payments? And why would I want to?
When they recalculate the monthly payment (either from me withdrawing money or from me requesting them to) will they also change the interest rate of the loan?

I want to start using The AccessBond facility of the loan as a "savings account" for my emergency fund.

So its a little archaic to be honest. But all of us banks do this the same way outside of the wealth Single facility and or investec facility.
You must state at date of deposit whether you would like it to recalculate and amortise for the payments to reduce, and or Term. Its simple maths that I think we all understand. The issue really relates to the archaic system believe me I work for a bank, that the system needs to be manually calculated to readjust the amortising curve. Barbaric really.

 

[Friedpet]

Thank you all the input. Much appreciated.

StandardBank eventually got back to me. I'll have to go in and apply for the Access Bond facility. The monthly payment will increase when I make a withdrawal, but it won't decrease when I make extra payments (this we knew), interest rate will not be affected by the access bond.

I'm still not completely convinced. I'll do some maths when I'm back home.
Basically: lets say I put R200,000 into the home loan to save for a deposit on a second home. Monthly payment won't decrease, so I'll still pay x+15% every month and interest charged every month won't be affected. But when I withdraw that R200,000 few months later, they will recalculate my loan as current outstanding + R200,000.

This doesn't even make sense now. Shouldn't all extra payments decrease the interest charged?

 

[Jehosefat]

It should all work out. Assuming a R1m loan over 20 years at Prime and you leave the R200k in for 6 months.

Outstanding balance after 6 months without the deposit = 991,403.57
Outstanding balance after 6 months when you withdraw the deposit = 983,360.56

Interest paid over the 6 months without deposit = 47,331.43
Interest paid over the 6 months with deposit = 39,288.42

So basically you would have paid the same total payments over the 6 months but with the deposit you would have paid about R8k less interest which will have reduced the capital balance.

 

[Friedpet]

Thanks for that, Jehosefat. I never got around to make my own calculations. I see there's a fee on "cash deposits" on the AccessBond facility. Online, they don't specify whether this "cash" includes EFT. I'll go see them soon to clarify that.

 

[Blu82]

From experience cash deposit means cash deposited into your home loan at the bank itself. They do no charge for electronic transfers between you accounts.

 

[Friedpet]

That's what I hope it means. Unfortunately, I don't trust my bank with my money

 

[Gaz{M}]

If you just pay in extra and do nothing, the term won't change from 240 months, but eventually your "outstanding balance" will be zero way before the 240 months are up and then your installment is obviously zero, until you take out money, in which case it will revert to the previous monthly amount, unless you ask them to recalculate and only charge you the outstanding balance divided by the remaining months.

e.g. R1m Home loan is paid to zero. Withdraw R100 000. Previous installment was R10 000, so will kick in again at R10 000 pm. Unless you call them and ask for the installment to repay the R100 000 over the remaining months (e.g. 100 months,), so like R1000pm x 100 months instead of of R10 000 x 10 months.