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Thread: Bonds - Additional payments to reduce Capital?

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    Silver Member Darkangelyaya's Avatar
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    Bonds - Additional payments to reduce Capital?

    A couple of years ago it was possible to pay a lump-sum into your bond account, and to specify that it had to be used to reduce the capital balance of the loan, and not to expunge interest.

    Is this still the case? Because if so, the banks are keeping it under wraps because of all the compound interest they score.

    The point is this: In essence you have taken out two loans - one for the capital amount, and one for the interest (surprisingly similar figures over 20 years too - sarcasm is mine). If that is 'true', then surely you as consumer can decide which of these 'two' to pay off with additional funds at your disposal, not so?

    And please don't tell me to contact my bank (Std Bank). We are not really on speaking terms at the moment. (I actually did contact them, and they feign ignorance, I feigned fainting).
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    Diamond Member Blurock's Avatar
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    You do not take out two loans for a bond account. You have capital outstanding and interest is calculated on the daily balance, capitalised monthly. The details will be in your contract with the bank. This will include the interest rate to be charged, the capitalisation date, whether accelerated payments are allowed, early settlement etc.

    When you pay into the account, the bank should calculate interest on the new outstanding balance, and not on a fixed formula as some of them did in years gone by.

    It would be in your interest to see a manager at your bank and negotiate a new repayment structure if you pay a lump sum into your bond account. You could either reduce the monthly repayment, or reduce the remaining term. If you are a good negotiator, you could even reduce the interest rate (he,he).

    You may save yourself thousands by reducing the term and keeping your instalment the same.
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    Diamond Member Justloadit's Avatar
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    Another thing to watch out for, is the insurance on the building. In many instances, you are only allowed to use the banks insurance. Sounds great, until the premium is to be paid. What they do is take the yearly payment for the insurance, and lump it on top of your outstanding amount, and then calculate monthly interest on top of this. If you can afford it, simply pay into the bod the amount of the insurance, and you will be amazed by how much it affects the calculated interest,

    Fortunately, I have R2K left on my bond.
    I was think of taking another loan on the bond to keep it open, because in the future, once the nest is empty, I would like to sell the place, and move into a 2 bedroom pandokie, with out having to worry about the pool, garden and regular maintenance that a house requires. Not sure if it would help to maintain the bond to facilitate the possible bond I may want to raise on the purchase of this pandokie, or I may even just rent the pandokie till I have made up my mind what to do in the future.

    Maybe move to the Mediterranean......

    Any thoughts , I mean on the bond, not the fishing
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    Diamond Member Blurock's Avatar
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    You can arrange with the bank not to cancel the bond, but to leave the account open. In most cases they will charge you a small monthly fee for that.

    You may also apply for a re-advance and use the gearing in your business, as bond finance is cheaper than overdraft or bank loans. Just make sure that the money does not lie idle in the business as you are then paying interest on unutilised funds.

    Or just arrange for an access facility where you can withdraw funds up to a pre-set limit and repay the full amount when cash flush.
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    Silver Member Darkangelyaya's Avatar
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    Quote Originally Posted by Justloadit View Post
    I was think of taking another loan on the bond to keep it open, because in the future, once the nest is empty, I would like to sell the place, and move into a 2 bedroom pandokie, with out having to worry about the pool, garden and regular maintenance that a house requires. Not sure if it would help to maintain the bond to facilitate the possible bond I may want to raise on the purchase of this pandokie, or I may even just rent the pandokie till I have made up my mind what to do in the future.

    Maybe move to the Mediterranean......

    Any thoughts , I mean on the bond, not the fishing
    Thanks for the info! No thoughts on the bond. Plenty on the fishing. LOL.
    I would keep the place, rent it out, keep the bond open, 'cos to find credit when you need it now in this country is next to impossible.
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    Diamond Member Justloadit's Avatar
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    Quote Originally Posted by Blurock View Post
    You can arrange with the bank not to cancel the bond, but to leave the account open. In most cases they will charge you a small monthly fee for that.

    You may also apply for a re-advance and use the gearing in your business, as bond finance is cheaper than overdraft or bank loans. Just make sure that the money does not lie idle in the business as you are then paying interest on unutilised funds.

    Or just arrange for an access facility where you can withdraw funds up to a pre-set limit and repay the full amount when cash flush.
    Just remember that while the bond is not paid, the title deeds remain in the banks possession, and technically belongs to the bank until fully paid.
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
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    Diamond Member Blurock's Avatar
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    Quote Originally Posted by Justloadit View Post
    Just remember that while the bond is not paid, the title deeds remain in the banks possession, and technically belongs to the bank until fully paid.
    The bank can not claim for any amount not legally owing to them. The cancellation of the bond just needs to be registered in the deeds office before the title deeds can be returned to the owner or before any other institution can register a bond.
    Excellence is not a skill; its an attitude...

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    Diamond Member Justloadit's Avatar
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    True, but the title deed is still not on your name, till it's done. Anything can happen, and as an individual, my pockets are not deep enough to tackle a bank for what ever reason

    I have always believed that to avoid the fight is far easier and cheaper than trying win the fight.
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
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    Silver Member Darkangelyaya's Avatar
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    Quote Originally Posted by Justloadit View Post

    I have always believed that to avoid the fight is far easier and cheaper than trying win the fight.
    Unless you start the fight with a chainsaw in hand.
    ~Anything or anyone who does not bring you alive, is too small for you~ Carina
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    Gold Member Chrisjan B's Avatar
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    Quote Originally Posted by Darkangelyaya View Post
    Unless you start the fight with a chainsaw in hand.
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