Pay bond off quicker

[JAPster]

Nope. The Italian cars is the reason why the bond took 5 years longer to reach a zero balance, but let me not derail the thread.

[Ernesto]

This works for those who are paid twice a month. If paid monthly I do not see benefit in paying twice.

I totally agree with this as per my original post.

[Gungets Tuft]

Banks used to have different methods of calculating the interest. The worst one was using the maximum capital value in a month. That was criminal. I do not know if that is still allowed. The best is interest is calculated based on daily balance.

There were two other things banks did. One was to load insurance payment in the beginning of the month and then ask the customer to pay at the end of the month. Something similar was done with interest loading.

Read the loan agreement and try to understand it. Not easy. As a minimum insist insurance to be deducted directly from the current account.

Key point - a great many banks deduct your insurance annually in advance, add it to your bond and you pay interest in it. Force them to stop and debit monthly on your current account.

[Gungets Tuft]

Okay so just went into online banking, home loan. Interest is charged by the bank on either the 30th or 31th, this is what i have picked up. My bond payment goes off on the 28th, so basically 2 or 3 days before they charge this whack of interest.

Basic details:
Home loan amount: 1.35 million
Bank required payment per month: R10 900 per month
Current payment: R15 000 per month.
Idea to increase to R20 000 per month to settle even quicker.

That's when interest is added to your bond amount, but how is it calculated. My bank calculates interest daily and adds it at the time of the monthly payment (debit order).

[Makro]

The way I understand the 2x per month payment idea, is actually to make half your normal bond payment, every 2 weeks. Not all months has got only 4 weeks. This will add to a total of 26 payments made (52÷2), which leads to 13 full payments over the normal 12, which then obviously leada to the quicker repayment.

[Ernesto]

It is actually not how many payments you make but how much you pay that reduces the term of the bond

[Mr.G]

Just another idea to maybe consider
Start paying the 11k per month again.im sure you got a great interest rate of prime less 1 or so.
Now take the 9k you wanted to add to the homeloan and invest in a decent investment that could easily give 8% and more over time.
I recon by year 6 or 7 you will have saved enough to clear bond if you so wish or maybe look at a new option
Dont see the interest you pay on the bond as an issue.You have a comfortable premium for your income and an asset.
The above way is to spread the risk and give time to see where this crazy land issue is going to end..If all is good in few years you have the money to clear bond..If alll changes you have cash that can help

[JAPster]

Just another idea to maybe consider
Start paying the 11k per month again.im sure you got a great interest rate of prime less 1 or so.
Now take the 9k you wanted to add to the homeloan and invest in a decent investment that could easily give 8% and more over time.
I recon by year 6 or 7 you will have saved enough to clear bond if you so wish or maybe look at a new option
Dont see the interest you pay on the bond as an issue.You have a comfortable premium for your income and an asset.
The above way is to spread the risk and give time to see where this crazy land issue is going to end..If all is good in few years you have the money to clear bond..If alll changes you have cash that can help

Not many investments currently that offer 8% where your cash is easily available at short notice. Also, not many investments that can beat prime minus 1 on an after tax basis with close to zero risk. I prefer having an access bond type facility and park extra cash in there. Then use it when the correct opportunity comes along.

[Dirkba]

Okay so just went into online banking, home loan. Interest is charged by the bank on either the 30th or 31th, this is what i have picked up. My bond payment goes off on the 28th, so basically 2 or 3 days before they charge this whack of interest.

Basic details:
Home loan amount: 1.35 million
Bank required payment per month: R10 900 per month
Current payment: R15 000 per month.
Idea to increase to R20 000 per month to settle even quicker.

If you do the maths...you could save up to R500 000 on repayments

Loan Amount: 1,350,000
Rate: 6.5% per year
Loan Term: 20 years 0 months
Extra Payment Per Month: 5,000

You will pay:

Monthly Payment: 10,065.24 + 5,000.00
Total Payment: 1,852,722.53
Total Interest: 502,722.53
Annual Payment: 180,782.88
Mortgage Constant: 13.39%

With Additional Payment:
Interest Saving: 562,935.07
Payoff Earlier by: 117 months

[Craigm]

I use a spreadsheet to track payments and forecast scenarios.
Pay in extra as soon as you can, assuming the interest is calculated daily. An extra 1k today saves you a good few rand more than 1k at the end.
The spreadsheet also shows the long term effect on changes of interest rate.
The higher your capital balance, the bigger the effect of interest rates and extra payments. Go hard initially and you'll reap the benefits later.

[vlakkie]

Just another idea to maybe consider
Start paying the 11k per month again.im sure you got a great interest rate of prime less 1 or so.
Now take the 9k you wanted to add to the homeloan and invest in a decent investment that could easily give 8% and more over time.

You get taxed on the interest earned on an investment. The interest earned in an investment is not guaranteed to be higher than the interest payable in a home loan

Payable Interest "avoided" in a home loan flexi reserve facility is tax free and guaranteed for the ~ 20 years duration of the home loan

[Gerhard_H]

I use a spreadsheet to track payments and forecast scenarios.
Pay in extra as soon as you can, assuming the interest is calculated daily. An extra 1k today saves you a good few rand more than 1k at the end.
The spreadsheet also shows the long term effect on changes of interest rate.
The higher your capital balance, the bigger the effect of interest rates and extra payments. Go hard initially and you'll reap the benefits later.

Exactly.

Dont wait "until the 15th" etc.

The sooner you put money into your bond, the sooner you start "saving".

Regards
A bank manager.

[Mal Hannes]

Yes it depends on when you get paid

If you get paid every two weeks then that is the right way to pay it.

If you get paid monthly make the payments at the begining of the month.

This will save more than breaking your payments into two weekly payments

[Mr.G]

Not many investments currently that offer 8% where your cash is easily available at short notice. Also, not many investments that can beat prime minus 1 on an after tax basis with close to zero risk. I prefer having an access bond type facility and park extra cash in there. Then use it when the correct opportunity comes along.

You are 100% correct,but remember i mentioned our stupid new property rights issue that is cropping up.There is no way i am going to add extra money in my property now until i am 100% sure it will remain mine..My senario was just for the next 2-3years to follow this issue.You wont have tax issues yet so early on the investment...But under normal circumstances what you say is the right way to actually do it

[Craigm]

You are 100% correct,but remember i mentioned our stupid new property rights issue that is cropping up.There is no way i am going to add extra money in my property now until i am 100% sure it will remain mine..My senario was just for the next 2-3years to follow this issue.You wont have tax issues yet so early on the investment...But under normal circumstances what you say is the right way to actually do it

The earlier you put it in, the bigger then benefit. If SHTF, pull it out of the access bond.

[JAPster]

You are 100% correct,but remember i mentioned our stupid new property rights issue that is cropping up.There is no way i am going to add extra money in my property now until i am 100% sure it will remain mine..My senario was just for the next 2-3years to follow this issue.You wont have tax issues yet so early on the investment...But under normal circumstances what you say is the right way to actually do it

That is why you need an access bond. Money available within seconds. Just have a savings account at another bank as well.

[mullerza]

There is no magic to this, the more you pay and quicker you pay the more interest you save. The name of the game is to reduce the daily balance as much as you can.

Also to save money in a savings account while you have bond is just stupid, you will not beat the tax free, risk free returns from putting extra cash into your bond.

some of these has probably been mentioned:
1. give your bond payment a raise every time you get one, bumping bond payments by 10% a year will almost halve your bond period.
2. When interest rates go down, keep on paying as if they were still high, any extra cash goes straight against capital
3. save in your bond, i.e.planning a holiday stick the cash into your bond and keep track on spreadsheet, come Dec take the cash out and you saved some interest.
4. all cash into bond when you get paid, spend on the credit card and settle it in full from bond at the end of the month.
5. ask your bank to not reduce your monthly payments with the extra savings in your bond so keep on paying your full amount
6. most important of all, DONT spend the extra money in your bond. Its tempting to dip in for some renovations, new car etc