The formula behind the instalment
M = P × r(1 + r)n / ((1 + r)n − 1)
P is the amount borrowed, r the monthly rate (the annual rate divided by 12, as a decimal) and n the number of monthly payments. The result is a level instalment: the same rand amount every month, assuming the rate stays where it is. What changes month to month is the split. Interest is charged on the balance still owing, so in the early years most of each payment is interest, and the capital share grows as the balance falls.
Worked example: R1,500,000 over 20 years
Borrow R1,500,000 at 10.75% for 20 years and the instalment comes to R15,228.43 a month. Over 240 payments you repay R3,654,824, of which R2,154,824 is interest, equal to 144% of the amount borrowed. In the first year, 88% of what you pay goes to interest, and the balance only drops below half the original loan in year 15. Take the same loan over 30 years and the instalment falls to R14,002.22, but total interest climbs to R3,540,799. A 25-year term sits between the two at R14,431.39 a month and R2,829,417 of interest.
A bigger deposit works like an extra payment made on the first day. Each R100,000 you do not borrow at 10.75% over 20 years takes R1,015.23 off the instalment and R143,655 off the interest bill. A deposit can also earn you a lower rate from the bank, which this calculator lets you test by changing the rate.
What an extra payment does
Money paid above the instalment goes straight to capital, and every rand of capital repaid early stops attracting interest for the rest of the term. On the example bond, an extra R1,000 a month brings the payoff forward by 3 years 6 months and saves R451,519 of interest, for R198,000 paid in extra over the shorter life of the bond. The effect is strongest early on, when the balance is highest, so an annual bonus paid in during the first five years does more than the same amount paid near the end.
Before you pay in extra, ask your bank how it treats the money. Many South African home loans let you draw extra payments back out, which is useful as an emergency reserve but undoes the saving if you spend it. Ask too whether a lump sum will shorten the term or lower the instalment, because the two give very different savings.
Prime, the repo rate and your bond
Most bonds in South Africa are variable and priced against the prime lending rate, quoted as prime, prime minus a margin, or prime plus a margin depending on your deposit and credit record. Prime follows the repo rate, which the Reserve Bank's Monetary Policy Committee reviews at its scheduled meetings. When the repo rate moves, banks adjust prime and the instalment on a prime-linked bond follows. The rate table above shows what a move of half a point or one point would do to your repayment, which is worth checking before you commit to a price at the top of your budget.
Under the National Credit Act, the maximum interest rate on a mortgage agreement is the repo rate plus 12 percentage points a year, and the maximum monthly service fee on a credit agreement is R60. Your quote must stay within both.
Before you apply
Work out what the bank is likely to lend with the bond affordability calculator, which applies the usual debt-to-income limits to your gross and take-home pay. Then budget for the once-off costs of buying: transfer duty, the conveyancer and the bond attorney. The transfer duty calculator estimates all three from the purchase price. If you need the monthly figure for other debt too, the loan calculator handles vehicle finance and personal loans.
This page is for planning and is not financial advice.
Frequently asked questions
How is a bond repayment calculated?
With the standard amortising loan formula. The annual rate is divided by 12 to get a monthly rate, and the instalment is set so that the same payment every month clears both interest and capital by the last month of the term. Each month interest is charged on the balance still owing, and whatever is left of the instalment reduces the capital.
What is the monthly repayment on a R1 million bond?
At 10.75% over 20 years, about R10,152 a month, with R1,436,549 paid in interest over the term. Change the rate and term above to match your bank's offer.
Is a 30-year bond better than a 20-year bond?
It lowers the instalment but raises the total cost. On R1,500,000 at 10.75%, stretching from 20 to 30 years cuts the instalment by R1,226 a month and adds R1,385,975 of interest. Some buyers take the longer term for breathing room and pay extra when they can, which keeps the option to fall back to the lower instalment.
How much does an extra R1,000 a month save?
On a R1,500,000 bond at 10.75% over 20 years, paying R1,000 more each month from the start clears the bond in 16 years 6 months and saves R451,519 in interest.
Does the calculator use the current prime rate?
No. It starts at 10.75% as a placeholder. Prime changes after Reserve Bank rate decisions, and your bank may offer prime, below prime or above prime, so type in the rate on your quote or your latest statement.
Why is my bank's instalment slightly different?
Banks usually add a monthly service fee to the instalment, and some include insurance premiums in the same debit order. Interest may also be worked out daily rather than monthly. This calculator shows the loan repayment only, so expect a small gap.
What happens to my repayment when interest rates go up?
On a variable-rate bond the instalment rises with the rate. Using the example above, a 1 percentage point increase on R1,500,000 over 20 years takes the instalment from R15,228 to R16,256. The table below the calculator shows the effect for your own figures.