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Does paying R100 extra on your home loan matter?

Category Helpful Hints

The substantial amount of debt owed on a home loan can often startle consumers making it seem pointless to pay anything extra, as it may take decades to settle the amount outstanding.

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. Use the bond calculator to work out how much you can save.

Dr Simphiwe Madikizela, Head of Special Projects at FNB Housing Finance, says what many consumers don’t realise is that even 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.

He says that in order to understand the impact of extra payments, consumers should first be able to distinguish between payment towards their 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.

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.

Author: Dr Simphiwe Madikizela, head of special projects at FNB Housing Finance

Submitted 14 Sep 17 / Views 307