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.

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 yearsand 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 monthlyYears to be paid offSavings on Interest
R10018 years and 8 monthsR49 933.77
R20017 years and 7 months  R91 913.82
R30016 years and 8 monthsR127 859.91
R40016 yearsR159 093.56
R50015 years and 3 monthsR186 545.30
R60014 years and 6 months R210 921.07
R70014 yearsR232 744.92
R80013 years and 5 monthsR252 426.89
R90013 yearsR270 280.29
R100012 years and 5 months R286 571.73

“You should also consider toping 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,” concludes Madikizela.