Home Loan lump sum and additional installments

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reactor_sa

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Hi hi,

I've Google'd a fair bit, only to find lots of calculators and advice, but nothing to answer my question:
I've paid about R110k extra into my bond over the last 6 months, but I haven't seen a reduction in the interest charges (except for Feb, probably because its a short month).
Do I have to phone up the bank and tell them to take it off the capital portion, or how does it work? Seems like I'm not saving on interest until the complete outstanding amount is paid off in the distant future...
 
Depends on the bank. With Nedbank you have to ask them.
 
Anything above the usual amount should result in a capital reduction and thus reduced interest. Not sure what else they could allocate it to? Shorten the total term of the loan maybe?
 
What bank is this? I had same experience with FNB. 10 years back with ABSA, I could see a difference. Though, with ABSA I had to ask them to take it off the capital, otherwise it would be part of the Flexi thing of theirs.
FNB, even when they took it off the capital, the interrest was the same. Won't do loans with them again.
 
I'm going to send an email to Nedbank homeloan to ask them how it works.
It's a Nedbank access bond.
 
reactor_sa said:
I'm going to send an email to Nedbank homeloan to ask them how it works.
It's a Nedbank access bond.
Click to expand...

Access Bond is like Absa's Flexi bond. Think you'll be fine if you just ask them to take the extra money off the capital.
 
I'm not quite following here, what else would they allocate the extra funds to? They don't just leave it there as excess or something

I'm fairly sure that interest is calculated on an ongoing basis and your minimum required monthly premium is the interest portion for that month plus enough capital to ensure you've paid off your loan at the end of the term.

I know on my ABSA Access Bond, when I made larger lump sum payments it definitely lowered my monthly premium though I certainly think I'm going to be making a call on Tuesday just to see what the story is.
 
nexxus said:
I'm not quite following here, what else would they allocate the extra funds to? They don't just leave it there as excess or something

I'm fairly sure that interest is calculated on an ongoing basis and your minimum required monthly premium is the interest portion for that month plus enough capital to ensure you've paid off your loan at the end of the term.

I know on my ABSA Access Bond, when I made larger lump sum payments it definitely lowered my monthly premium though I certainly think I'm going to be making a call on Tuesday just to see what the story is.
Click to expand...

With an Access bond, you have access to the surplus money you pumped onto it up until the point where you ask the bank to rather delve the capital with the surplus. At that point, recalculation takes place (shorten the term or lower interrest). What could have happened at ABSA, they could've done that automatically. Happened to me back then a few times.
I am a little out of touch, so please correct me if I'm wrong. Haven't done this in a long time.
 
errrrrrr, nope.

Any extra payments you make should automatically and immediately reduce your interest charge. No request necessary. If that's not done, they're ripping you off.

How much is your bond? Remember that interest rates went up in July last year, so comparing your interest paid amount now to a year ago isn't really valid.
 
Sinbad said:
errrrrrr, nope.

Any extra payments you make should automatically and immediately reduce your interest charge. No request necessary. If that's not done, they're ripping you off.

How much is your bond? Remember that interest rates went up in July last year, so comparing your interest paid amount now to a year ago isn't really valid.
Click to expand...

I've also paid extra and even though the interest rates went up the interest still decreased. What also happened when they put the interest rates up at least this is what I think, they recalculated the base payment and I ended up paying less, probably to stretch it out to 20 years again.
 
czc said:
I've also paid extra and even though the interest rates went up the interest still decreased. What also happened when they put the interest rates up at least this is what I think, they recalculated the base payment and I ended up paying less, probably to stretch it out to 20 years again.
Click to expand...

Yes they tend to reduce the repayments to keep the period at 20 years. Ask them to keep them higher if you want to shorten the period.
 
My installments have not decreased (don't want them to), and the interest charge is within R100 or R200 differnce from month to month, except Feb which was a few hundred lower probably due to the shorter month.
I will reply here with the feedback from Nedbank once received.
 
You need to "lock" your debit order if you want this to live update otherwise they simply lower your installments every month.

In the case of Nedbank it doesn't come off your capital balance directly but sits in a separate allocation and is "virtually" deducted from your balance and the interest worked out accordingly so that you can still access that money if you need to.

I'm guessing you don't have internet banking for this Home loan and so you only receive the quarterly statement which is maybe where the confusion comes in.
 
reactor_sa said:
My installments have not decreased (don't want them to), and the interest charge is within R100 or R200 differnce from month to month, except Feb which was a few hundred lower probably due to the shorter month.
I will reply here with the feedback from Nedbank once received.
Click to expand...

Yeah mine also fluctuates dramatically from one month to the next.

I have about 150k overpaid agains the home loan but from January to March the interest is R300 odd lower, then in April it's R250 up again.

Who knows, but like you say maybe the length of the month is what throws it off.
 
With SBSA my debit-amount stays more or less the same and interest portion deducts after putting in a lump sum last year. I think interest will go up by 2% by end of the year and it would be not wise to shorten loan-term and rather keep putting more money in.
 
Im with FNB and it works well. I have an access bond, my monthly repayment does not change. But the amount of interest I get charged each month gets less the more I put in. So for example if my repayment is 10 000 and the interest is 8000 of the 10 000, if I drop a 100k lump into the bond, my repayment would remain 10 000 but my interest will drop to 7000. So basically the extra 1000 becomes available.
 
F1 Fan said:
Im with FNB and it works well. I have an access bond, my monthly repayment does not change. But the amount of interest I get charged each month gets less the more I put in. So for example if my repayment is 10 000 and the interest is 8000 of the 10 000, if I drop a 100k lump into the bond, my repayment would remain 10 000 but my interest will drop to 7000. So basically the extra 1000 becomes available.
Click to expand...

This is what I expected, but doesn't seem to be happening. Will wait for their email response.
 
So called ABSA today, thought I'd feed back if anyone is interested. This is what I got from them for my AccessBond.

First, the setup, numbers just for illustration. My initial bond was ±R500k, I have ±R350k left after 5 years. Due to the occasional burst of good fortune, I'm ±R200k in excess. This amount is applied directly against the capital left over automatically.

My min payment is x, my actual monthly payment is locked at y (some number greater than x), thus I pay an excess of (y-x) every month and this amount is applied to the capital outstanding.

My interest rate is P - 0.5 p/month, however it's recalculated daily. I realise now I should have asked what this means exactly, I love to know the formula they use to re-calculate daily.

Because I've locked my monthly payment, by being in excess I'm effectively lowering the term of the loan. I had to ask them to do this, otherwise, they'll adjust your monthly debit order to reflect the minimum payment in order to keep the term constant.
 
nexxus said:
So called ABSA today, thought I'd feed back if anyone is interested. This is what I got from them for my AccessBond.

First, the setup, numbers just for illustration. My initial bond was ±R500k, I have ±R350k left after 5 years. Due to the occasional burst of good fortune, I'm ±R200k in excess. This amount is applied directly against the capital left over automatically.

My min payment is x, my actual monthly payment is locked at y (some number greater than x), thus I pay an excess of (y-x) every month and this amount is applied to the capital outstanding.

My interest rate is P - 0.5 p/month, however it's recalculated daily. I realise now I should have asked what this means exactly, I love to know the formula they use to re-calculate daily.

Because I've locked my monthly payment, by being in excess I'm effectively lowering the term of the loan. I had to ask them to do this, otherwise, they'll adjust your monthly debit order to reflect the minimum payment in order to keep the term constant.
Click to expand...

Each day: outstanding balance * interest rate / days per year.
This amount is added up into one interest payment made per month.

Basically it means you earn interest "credits" from the day you make an extra deposit into the account.
 
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