Home Loan payments

[CathJ]

My bond was registered in July, and I've been keeping an eye on my payments. FNB is quite nice in that they show the interest added to what you owe each month.

Since I pay every month on time, and most months pay in a bit extra as well, I was expecting to see that over the last 4 months, the interest charged has decreased slightly every month. But that's not what's happening, and I'm confused.

It goes something like this:
August: interest charged is x
September: interested charged is x + 460
October: interest charged is x - 50
November: interest charged is x + 140

How can I be paying more in interest this month than the first month, when my regular payments + extra payments have decreased the bond amount over that time?

I'm sure the bank isn't wrong - they do this all the time, they must be reasonably competent at it - but I would like to understand what's going on.

 

[supersunbird]

Amount of days in a month is one factor.

 

[CathJ]

Amount of days in a month is one factor.

I did think of that, but there just seems to be too much variability.

 

[ABCpt]

Do you pay your installment before the end of the month when the interest is calculated?
Secondy, while the bond amount is still high, the one days interest can make a big difference.

 

[supersunbird]

And remember, you are paying behind, not ahead.

So it should be:
July: interest charged is x
August: interested charged is x + 460
September: interest charged is x - 50
October: interest charged is x + 140

Both the + months were 31 day months and September a 30 day month.

Anyway, my SA Home Loan bond also fluctuates like this.

 

[rrh]

I did think of that, but there just seems to be too much variability.

My understanding is that interest is calculated / compounded on a daily basis, even though it only appears on your statement at the end of the month.

Why not ask your bank manager ?

 

[Spies69]

You can calculate (approximately) the amount of interest as:
Bond Value at start of month * (# days)* interest / 365

By this calc one days interest (for a R1m bond) is about R220 so the variability you are seeing sounds reasonable.
(1,000,000*1*8%/365)

By the way, you can also use the above calc to determine how much you will save in interest per month.
Extra amount paid * (30 days) * (interest) / 365

 

[CathJ]

And remember, you are paying behind, not ahead.

So it should be:
July: interest charged is x
August: interested charged is x + 460
September: interest charged is x - 50
October: interest charged is x + 140

Both the + months were 31 day months and September a 30 day month.

Anyway, my SA Home Loan bond also fluctuates like this.

This was the answer - when I applied the interest to the correct month, used the correct number of days per month, and calculated the interest per day, then yes - it is decreasing as I expect.

Cool, I knew I had to have something wrong in my mind!

 

[Jehosefat]

My understanding is that interest is calculated / compounded on a daily basis, even though it only appears on your statement at the end of the month.

Why not ask your bank manager ?

Calculated on a daily basis; only compounded monthly.

 

[RichardG]

Remember if you paying by cash the bank charges you a cash deposit fee per R100 note, rather pay via EFT. Happens the same thing on a credit card you pay upfront come month end for next credit card statement you will notice interest/chargers.