Reading time: 2 Min
Ever wondered if it pays off to pay more on your bond account? Read more to find out…
Does Paying Extra on Your Bond Pay Off?
Anyone that pays of a bond knows that the high amount of the initial bond paired with the interest over the long term (usually 20 years) may seem daunting to pay off. However, paying only R50 per month more on your bond can make a significant difference on the interest in the long run.
According to a Property24 article last year, Dr Simphiwe Madikizela, Head of Special Projects at FNB Housing Finance, said what many consumers don’t realise is that even paying as little as R50 extra on your bond, can immediately start saving your interest. By paying R50 extra on a R500 000 Home Loan on a 10.25% interest rate for 20 years, you will be able to pay off your home loan in 19 years and three months, while saving over R26 111.86 in interest that you would have paid to the bank.
On any home loan the first payments are usually allocated towards interest and thereafter the actual debt amount. When you decide to pay more than the monthly installment, the additional amount will be offset against the principle debt thus lowering your debt and increasing your return on investment.
Madikizela demonstrates the impact of making an additional payment, every month, on a R500 000 home loan at an interest rate of
10.25 % for 20 years:
|Recurring extra payment monthly||Years to be paid off||Savings on Interest|
|R100||18 years and 8 months||R49 933.77|
|R200||17 years and 7 months||R91 913.82|
|R300||16 years and 8 months||R127 859.91|
|R400||16 years||R159 093.56|
|R500||15 years and 3 months||R186 545.30|
|R600||14 years and 6 months||R210 921.07|
|R700||14 years||R232 744.92|
|R800||13 years and 5 months||R252 426.89|
|R900||13 years||R270 280.29|
|R1000||12 years and 5 months||R286 571.73|
“You should also consider topping up your extra payments with a lump sum, either from your bonus or tax refund, etc. This will significantly reduce your interest over the loan period.
“Being aware of the impact of making extra payments will help you manage your bond repayments and ultimately ensure that you pay off your bond as quickly as possible,” says Madikizela.
You can use a bond calculator to determine the exact amounts you will be able to save when paying more on your bond account.
The Payneless Bonds Team