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Bond repayments and interest rates
I am considering applying for a home loan and would like advice on the following: If I get a loan of R1 200 000 at Prime, i.e. 8.5%, I would have a monthly repayment of R 8 500. This is what the banks' online calculation tools tell me. However, what percentage of this R 8 500 actually goes toward paying of the bond capital, i.e. R1 200 000, and what percentage is just interest?
For a home loan of R1 200 000 at prime (8.5%) over a 20-year term, with no deposit, the monthly repayment would be R10 414. In the first month, the interest portion of the repayment is R8 500 and the capital reduction (the amount you are paying back towards the actual cost of the property) is R1 914. The interest portion reduces every month thereafter, and the capital reduction increases.
If it were possible to secure a reduced interest rate of 8%, then over 20 years with no deposit, the monthly repayment would be R10 037, of which the interest payment in the first month would be R8 000, reducing monthly thereafter, while the capital reduction would increase.
It is also extremely beneficial for you to allocate whatever money you can to a deposit when making an offer on a property for two reasons: first, because it will increase the likelihood of your bond application being approved by a bank, and secondly because it significantly decreases your repayments.
With a 5% deposit - R60 000 on a R1 200 000 property - at prime interest over 20 years, the monthly bond repayment reduces to R9 893. Even a R20 000 deposit on a R1 200 000 million home loan will reduce your total repayments by R41 656 over 20 years.
An expert mortgage originator can negotiate on your behalf with the banks to get the lowest possible interest rate for you, and will help you to structure your home loan in the best way to suit your requirements
Try ooba's bond repayment calculator, as well as other calculators relating to home loans to get more insight.