Only a masochist would beg their bank to be allowed to shovel ever- increasing chunks of their salary in to the gaping maw of bond repayments, and to do it twice a month. Or someone who knew that, bizarrely, it could prove quite profitable.
According to Standard Bank, by splitting your bond repayment in two, and paying the first installment halfway through each month, you could knock almost R43 000 off a 20-year R150 000 bond at the present interest rate of 22%. The total interest on such a bond, if paid normally, would be R518 542.
Interest on housing bonds is calculated daily, but capitalised (added to your debt) only once a month, usually on the last day.
That means if you cough up half your usual payment halfway through the month, that money is knocked off the capital debt and you no longer pay interest on it.
At the month-end, you pay the second half of the bond and have fulfilled your obligation to the bank, meanwhile saving yourself money without actually having to strain your budget any further.
The earlier you make the first payment, the more interest you save; so, if possible, it would make sense to make the first payment on the first day of each month.
Nor does it have to be half – you could pay almost everything early and then pay off the balance at the month- end when you get your next salary cheque.
In fact, taken to extremes, it could be financially worthwhile to pay your bond every day – or rather it could be if the transaction fees demanded by the banks wouldn’t efficiently strip you of any pecuniary advantage.
Unfortunately, there is some pain to be suffered for the gains you can make using this strategy.
Since you effectively have to get ahead of your payments, the first month you adopt the split payment strategy you will have to disburse money earlier in the month.
This could be difficult if you’re used to waiting for your pay cheque at the end of the month to make the bond repayment.
But saving a little bit each month so you can start paying early or month by month gradually bringing your payments forward will reap you big gains in the long run.
Don’t forget that if you are saving yourself interest, your bank is by definition losing the interest income you would have paid it -which brings us to the other possible drawback to this split-payment strategy: your bank has to agree to it.
Nedcor and Standard Bank both say they encourage customers to pay off their debts as swiftly as possible.
If splitting the payments is going to help you, they are quite amenable – provided you negotiate the change with them first.
Said Standard Bank representative Eric Larsen: ”We certainly don’t have any problems if a customer wants to split his/her monthly payments into two. The benefits are obvious.
”He or she will have to make these arrangements with the home-loans division as payments are usually via debit order and would have to be amended.”
A representative for First National Bank (FNB) said customers were not allowed to make split payments for logistical reasons.
It would also cost the bank much more in administration costs without it gaining any more money.
But, as with most things in life, this could be a guideline rather than an absolute rule.
One colleague managed to get FNB to agree to a split bond payment, although the bank remained sticky on arranging the relevant stop orders and direct debits.
Initial resistance to the idea melted before the force of a tough negotiator prepared to take her business elsewhere. It helped that she had detailed alternative options from competing banks.
So, rather than wailing and gnashing your teeth over the rising interest rates, be smart and investigate any methods of escaping your bond debt as fast as possible.