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Does paying an extra amount on a home loan matter
Johannesburg

Does paying R100 Extra On Your Bond Matter?

Posted In: Money Talk

The amount of debt you can owe on a home loan can be starting, making it seem pointless to pay an extra amount, but an extra Rand or two can make all the difference in the world.

When it comes to a home loan what you may not realise is that paying as little as R50 extra on your bond, you can immediately start saving on 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.

In order to understand the impact of extra payments, you should first be able to distinguish between payment towards your principal debt as well as interest paid on the principal debt.

For a home loan, the first payment you make would typically be paid towards interest. However, any extra payment you make enables you to lower the principal debt owed. As the principal debt decreases, so does the amount of interest you have to pay.

Below is a gist on how an additional payment, every month, on a R500 000 home loan at an interest rate of 10.25 % for 20 years:

 

Money Talks

You should also consider toping up your extra payments with a lump sum, either from your bonus or tax refund. This will significantly reduce your interest over the loan period.

We all dream to have our own homes one day and when you finally make that big step one day remember the impact of making extra payments, which will help you manage your bond repayments and ultimately ensure that you pay off your bond as quickly as possible.

Do you pay extra cash to your debt?

Words: Dr Simphiwe Madikizela, Head of Special Projects at FNB Housing Finance

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