Saving on interest

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lholhos

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I recently bought a house(Joint Venture between me and mom). First payment this month end. Now I have been looking on ways to save on interest, So my thought was To my understanding banks calculate interest on daily basis. So meaning if were to deposit money to my bond account, say 15th and 30th...I would be saving on interest that is it calculated daily. right?
just need more info...
 
on bond accounts its calculated monthly, so the best is to deposit any leftover cash on to the bond just before they calculate (ie the 25th)
 
Nerfherder said:
on bond accounts its calculated monthly, so the best is to deposit any leftover cash on to the bond just before they calculate (ie the 25th)
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The interest is actually calculated on a daily basis, yet compounded monthly. There is a slight difference. So yes, you would save a little on interest. Any extra payment into your bond ultimately saves a LOT of interest.
 
hannodewind said:
The interest is actually calculated on a daily basis, yet compounded monthly. There is a slight difference. So yes, you would save a little on interest. Any extra payment into your bond ultimately saves a LOT of interest.
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The net effect is the same... it will make no difference if you make a deposit twice in the month or once.
 
Nerfherder said:
The net effect is the same... it will make no difference if you make a deposit twice in the month or once.
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Depends on the bond.
My bond is calculated on the daily balance. So no, nett effect is not the same.
 
Nerfherder said:
The net effect is the same... it will make no difference if you make a deposit twice in the month or once.
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If you are getting that from your bank, they are stealing from you. Just to clarify, with an investment example (loan/investment calculations more or less the same): Say you invest R5000 on the 1st of March at 6% yearly interest (compounded monthly, on the 1st of every month). You will expect on the 1st of April to receive R25 interest. Say you make another deposit of R5000 into the investment on the 15th March, would you not expect to get another half months worth of interest for the extra R5000 deposited? On the 1st of April you should then receive R37.50 interest, and then in May you receive interest on the compounded amount etc etc etc.
 
hannodewind said:
If you are getting that from your bank, they are stealing from you. Just to clarify, with an investment example (loan/investment calculations more or less the same): Say you invest R5000 on the 1st of March at 6% yearly interest (compounded monthly, on the 1st of every month). You will expect on the 1st of April to receive R25 interest. Say you make another deposit of R5000 into the investment on the 15th March, would you not expect to get another half months worth of interest for the extra R5000 deposited? On the 1st of April you should then receive R37.50 interest, and then in May you receive interest on the compounded amount etc etc etc.
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and if you make one deposit of R10 000 at the end of the month you will get the exact same amount of interest.

The only accounts that calculate interest by the day like that are overdrafts.
 
Decided to read my loan agreement.. This what is says about the Interest

Debit interest will be calculated daily on the amount outstanding at the end of each day and will be
compounded on the Repayment Date and debited monthly to the Customer’s home loan account.
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Decided to read my loan agreement.. This what is says about the Interest
 
You are correct.

Your repayments are calculated over 240 terms (12 months 20 years) to reduce your capital amount to 0. If you take those repayment amounts and pay 1/2 fortnightly you will pay your loan off sooner without effectively paying more monthly because for for 15 days each month you save the additional interest that would have been calculated on the full outstanding balance. This saving compounds monthly effectively saving you substantial amounts over the total loan period.

Its a simple but effective mechanism which can be enhanced further if say you earned a weekly wage and made 4 payments a month.

also put any spare lump sum amounts into the bond to yield an effective tax free rate of interest of your bond rate.

FYI ALL mortgage loans (and most bank loans in general)are calculated daily and capitalised monthly.
 
Nerfherder said:
and if you make one deposit of R10 000 at the end of the month you will get the exact same amount of interest.
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Not exactly the same, but close enough. A couple of rand is not going to kill anyone :)

Nerfherder said:
The only accounts that calculate interest by the day like that are overdrafts.
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And then there is lholhos' loan agreement....

Debit interest will be calculated daily on the amount outstanding at the end of each day and will be
compounded on the Repayment Date and debited monthly to the Customer’s home loan account.
Click to expand...
 
I'll have to check mine then.... because both home loans I have had have been calculated monthly (Nedbank/FNB) as well as my car repayments
 
Nerfherder said:
I'll have to check mine then.... because both home loans I have had have been calculated monthly (Nedbank/FNB) as well as my car repayments
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Good idea. I just cannot see how they cannot calculate daily. Otherwise, either way some-one loses. If they calculate the interest the based on the amount at the beginning of the month, then you still pay interest on the amount deposited mid-month (which is wrong, but banks can maybe do this? :o ) On the other hand, if they charge you the months interest based on the end of month balance, then the bank loses out on the higher interest based on the higher balance for the first half of the month (which will not happen, banks will not make themselves lose :D )
 
In days of yore the interest was calculated around the 29th of the month, so it made sense (if you were paid on the 25th and had an access-type account) to deposit your pay-cheque into the bond, have the interest calculated on the lower amount, then withdraw the pay-cheque. These days the calculation is on a daily basis, with the actual amount being shown on your statement at the end of the month.

If you ask to see a full statement of your account - as used internally by the bank - you will actually see the results of the daily calculation. The statement that you & I receive is a sanitised version i.e with cock-ups etc removed ... :)

The quickest way to drop your interest is to pay in a little extra each month. An extra 5% will reduce the period of your loan by a few years.

If you are really keen to save create a spreadsheet mapping the loan. Then experiment by adding various amounts to the monthly repayment: you will be amazed !
 
How do you go about paying extra into your homeloan? Is there something special you need to do? I just know that it comes off my account the 3 of each month.
 
czc said:
How do you go about paying extra into your homeloan? Is there something special you need to do? I just know that it comes off my account the 3 of each month.
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With FNB you just do a transfer on internet banking.

etwylite said:
You are correct.

Your repayments are calculated over 240 terms (12 months 20 years) to reduce your capital amount to 0. If you take those repayment amounts and pay 1/2 fortnightly you will pay your loan off sooner without effectively paying more monthly because for for 15 days each month you save the additional interest that would have been calculated on the full outstanding balance. This saving compounds monthly effectively saving you substantial amounts over the total loan period.
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You could only do that if you were being paid twice a month.
 
This is sound advice

pay just 10% more monthly and you take 5 years off your term.
this calculator works well.
https://www.fnb.co.za/calculators/my-additional-payments.html
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It's crazy my bond is R525000 which makes my repayments R4700. I'm currently paying an extra R3500 a month, if I do this for the entire term I save R425000 in Interest which means I can buy another place.

Now the question is if I take all the money that's been overpaid in my home loan (which is enough for a deposit), buy another studio flat and rent it out will that be beneficial to me?
 
Originally Posted by etwylite
You are correct.

Your repayments are calculated over 240 terms (12 months 20 years) to reduce your capital amount to 0. If you take those repayment amounts and pay 1/2 fortnightly you will pay your loan off sooner without effectively paying more monthly because for for 15 days each month you save the additional interest that would have been calculated on the full outstanding balance. This saving compounds monthly effectively saving you substantial amounts over the total loan period.
You could only do that if you were being paid twice a month.
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Thanks for the info guys, much appreciated, Two payments a month then!
 
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