Making extra payments on a home loan

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notinterested

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Hi everyone

I have been making extra payments into my home loan for the past 5 months and have also transferred all my savings into it. It's an FNB flexibond, so i still have access to all my surplus payments.

My question is about the interest i should be getting charged on the loan, since i now have quite a large surplus amount. I was under the impression that the amount of interest i will be charged will be less as it will be calculated based on a lower value.

However, looking at my statement, my interest amount is basically the same as before i started making extra payments. Am i doing something wrong? Am i supposed to call the bank to reduce the amount? I thought this was done automatically.

Edit:
It's currently a 50k surplus. Original loan amount of 990k, amount outstanding is about 895k.
 
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did your monthly amount that you pay reduce?
were there any interest rate increases during that period?
 
How much is a large surplus? What is your original bond amount, and how much extra did you put into the account? It would have to be fairly substantial to have much effect on the interest being charge, since most of your interest is loaded upfront...
 
Mike Hoxbig said:
How much is a large surplus? What is your original bond amount, and how much extra did you put into the account? It would have to be fairly substantial to have much effect on the interest being charge, since most of your interest is loaded upfront...
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This and the fact that it's over 20years. Unless it's a couple of 100k.. it wont make a substantial difference.
 
Your monthly payment doesn't reduce when you make extra payments, but the proportion of capital vs interest definitely will. You can reduce the monthly payment by paying in extra if you ask them but then the extra payments you've made will be capitalised and you will lose access to the funds.
 
Test

*****

Of course now it works.

****

Unless I put my whole post in, then I'm blocked. WTF.
 
Just remember, interest is capitalised daily. So you pay more interest in a month with 31 days. The date which you dropped in the cash makes a big difference too.
 
calypso said:
Just remember, interest is capitalised daily. So you pay more interest in a month with 31 days. The date which you dropped in the cash makes a big difference too.
Click to expand...

That is what I was trying to say but for some reason can't post without getting the blocked message if it's longer than a sentence.
 
air said:
did your monthly amount that you pay reduce?
were there any interest rate increases during that period?
Click to expand...

No my monthly payment is the same and there have been no interest rate changes.

Mike Hoxbig said:
How much is a large surplus? What is your original bond amount, and how much extra did you put into the account? It would have to be fairly substantial to have much effect on the interest being charge, since most of your interest is loaded upfront...
Click to expand...

I guess i shouldn't call it big - it's currently a 50k surplus. Original loan amount of 990k, amount outstanding is about 895k.

calypso said:
Just remember, interest is capitalised daily. So you pay more interest in a month with 31 days. The date which you dropped in the cash makes a big difference too.
Click to expand...

I honestly did not know that. Feel kind of stupid now. I transferred about 30k into the home loan in August, so i expected a nice drop in my interest for last month. 10k out of that 30 was only in the last few days though. So does that mean my interest payment at the end of september should be a better of reflection of my extra payments?
 
R50k at current prime (10.5%) works out to R437.50 interest per month. In other words, if you're R50k ahead on your payments for the full month your interest due will be R437.50 less than had you not paid the extra R50k in. As was mentioned earlier, your repayment should stay the same meaning you'll pay off R437.50 extra of the capital amount (and then you'll be R50 437.50 ahead for the next month).

The exact amount might differ from month to month as not all months are of equal length. The R437.50 was calculated as 50000*10.5/100/12.
 
Speedster said:
R50k at current prime (10.5%) works out to R437.50 interest per month. In other words, if you're R50k ahead on your payments for the full month your interest due will be R437.50 less than had you not paid the extra R50k in. As was mentioned earlier, your repayment should stay the same meaning you'll pay off R437.50 extra of the capital amount.

The exact amount might differ from month to month as not all months are of equal length. The R437.50 was calculated as 50000*10.5/100/12.
Click to expand...
Thanks, good explanation
 
If you're paying in extra you will benefit. Either in shorter term or less total interest. Don't stress it. ;)
 
calypso said:
Just remember, interest is capitalised daily. So you pay more interest in a month with 31 days. The date which you dropped in the cash makes a big difference too.
Click to expand...

Calculated daily, capitalized/compounded monthly.
 
Not sure if this is true or not, but I've heard that doing this basically works more like a savings account, because the money is 'loose' and available to you to take out at any time.

I was told that once you have something substantial in there, that you need to contact the financier to basically 'take' the money and write it off against the home loan. Only then will the actual outstanding balance become less, and then you also don't have access to the bits that they have 'taken' anymore...

Not my cup of tea though, so not sure how correct/incorrect it is.... :confused:
 
savage said:
Not sure if this is true or not, but I've heard that doing this basically works more like a savings account, because the money is 'loose' and available to you to take out at any time.

I was told that once you have something substantial in there, that you need to contact the financier to basically 'take' the money and write it off against the home loan. Only then will the actual outstanding balance become less, and then you also don't have access to the bits that they have 'taken' anymore...

Not my cup of tea though, so not sure how correct/incorrect it is.... :confused:
Click to expand...
Nope. You're confusing that with an access bond
 
Speedster said:
R50k at current prime (10.5%) works out to R437.50 interest per month. In other words, if you're R50k ahead on your payments for the full month your interest due will be R437.50 less than had you not paid the extra R50k in. As was mentioned earlier, your repayment should stay the same meaning you'll pay off R437.50 extra of the capital amount (and then you'll be R50 437.50 ahead for the next month).

The exact amount might differ from month to month as not all months are of equal length. The R437.50 was calculated as 50000*10.5/100/12.
Click to expand...

Why are you working the interest out on the 50k?

Should it be 875k - 50k as the capital balance on which the interest is calculated?

And that would be why OP is seeing such a small difference as it's actually still a very small chunk of change.

****

I would have worked out total interest with both capital amounts and subtracted them from each other.

Unless this is a shortcut to that same result?
 
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Whether I understood it wrongly (which I did obviously) or not, whether the interest calculations are shown correctly or not...

NOTHING beats opening that first quarterly home loan statement and seeing that you're done paying off interest, and you have now actually started to pay on the principal debt :crylaugh:
 
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