Why you should pay a little extra on your bond installment…

p>A home is most likely to be the largest investment you will ever make. It is important that you manage it correctly in order for you to get the best return on your investment. Once a bond has been granted, many homeowners do not understand how much interest they pay on their bond and for this reason, it is important to understand how you can make your money work for you!

Why you should pay a little extra on your bond installment…

When you apply for a bond to purchase a property, you are in effect taking out two loans. The first loan is to repay the amount of the property. The second loan is to repay the interest charged, by the financial institution, generally over a 20 year term (average repayment term). It is important to note that most of your bond repayments over the first few years, generally go towards paying off the interest of your bond.

Interest is capitalized monthly on your bond. It is important to pay a little extra towards paying off your loan from the very beginning because this will have a much greater effect on reducing interest overall. However, even if you are a few years into your loan term, it is never too late to start contributing that little bit extra as it will still ensure a substantial saving. By increasing your monthly repayments, you will reduce the term of your bond. The end result is that you will have saved tens-of-thousands of Rand’s, which you will not have managed had you invested the same amount in a savings account.

The aim of this article is to highlight the benefits of paying a little extra on your bond. In all cases the calculations are based on a loan amount of R500,000, an interest rate of 10.5% and a bond life of 20 years (being 240 installments).