Bond repayment calculator
A bond repayment calculator for South Africa: your monthly repayment, what the loan costs in interest over the full term, and what paying a bit extra each month actually saves. Then the part no bank calculator shows you, which is the return you would need to do better by investing that money instead.
Bond repayment calculator
Both lines spend the same R11 322 a month for the whole 20 years, and both end with the bond settled. The only difference is the order: bond first, or market first. After 240 months the gap is R181 551.
How this bond calculator works
The repayment comes from the standard amortisation formula, with the rate you enter divided by twelve and charged monthly. That is the convention South African banks use, so the figure here matches the one on your offer rather than landing a few rand away from it. Interest is charged on the outstanding balance each month, the repayment covers that interest first, and whatever is left reduces the capital.
Anything in the extra paid in monthly field goes straight at the capital. That is where the leverage is. On a R1 000 000 home loan over 20 years at 11%, an extra R1 000 a month settles the bond in about 15 years instead of 20 and saves roughly R419 000 in interest, which is more than the extra payments themselves add up to.
Paying it down versus investing the same money
Both scenarios on the chart spend exactly the same amount every month for the whole term, and both end with the bond settled. In the first, the extra goes into the bond, and once the bond is gone the entire repayment plus the extra is invested for whatever is left of the term. In the second, only the required repayment is made and the extra is invested from the first month. The bond runs its full term. Because the cash out is identical, the difference at the end is purely the order you did things in.
The number that settles it is the break even return, and it is higher than most people expect. Paying a bond down is a risk free, tax free return equal to the bond rate, and because bond interest compounds monthly the effective rate is above the quoted one. A bond quoted at 11% is really 11.57% a year. An investment then has to cover its own fees on top, so at 1% in fees the market has to return about 12.7% a year, every year, before fees, just to draw level. That is not an impossible number. It is a demanding one, and it has to hold for two decades.
The honest caveat runs the other way too. The bond return is certain and the market return is not, but money in an investment account is money you can reach, while money in a bond is money you would have to refinance to get back. Liquidity is worth something, and this calculator does not price it. Nor does it model tax: see the question below on that, because outside a tax free savings account the market side gives some of its return back to SARS.
For the investment side on its own, with contribution escalation and the fee drag shown as its own number, use the investment calculator. To see what a fixed interest rate does at different compounding frequencies, the compound interest calculator lays out the year by year table. The All Share level, the day’s leading and lagging shares and the rand are on the JSE today page.
Questions
How is a bond repayment calculated in South Africa?
On the standard amortisation formula, with the quoted annual rate divided by twelve and applied monthly. A R1 000 000 loan over 20 years at 11% works out to R10 322 a month. Early on almost all of that is interest: in month one, R9 167 of it. The capital portion grows every month as the balance falls, which is why the last years of a bond clear so much faster than the first.
Should I pay extra into my bond or invest the money?
Paying a bond down earns you the bond rate, guaranteed, with no tax and no market risk. That is the bar an investment has to clear. Because bond interest compounds monthly, the real bar is slightly above the quoted rate: 11% quoted is 11.57% effective. Add investment fees and the bar rises further, roughly half a percent for every half percent of fees. The calculator above works out the exact figure for your numbers.
Does paying extra reduce my instalment or my term?
The term, unless you ask the bank to do otherwise. The instalment stays where it is and the loan simply runs out sooner, which is what this calculator assumes. Some banks will re-amortise to a lower instalment on request, but that gives up most of the benefit: the saving comes from killing the balance early, not from paying less each month.
What interest rate should I use?
Whatever your bank actually quoted you, which is normally expressed as prime plus or minus a margin. If you are still shopping, run the calculator at a rate half a percent either side of the offer to see what the margin is worth over the term. On a R1 000 000 bond over 20 years, half a percent is worth well over R100 000 in interest.
Does this include transfer duty and bond costs?
No. This is a bond repayment calculator, so it covers the loan itself: capital, interest, term and any extra you pay in. Transfer duty, bond registration, attorney fees and the bank initiation fee are once-off costs at purchase and are not part of the repayment. Budget for them separately.
Are the investment returns here after tax?
No, and that is the asymmetry to keep in mind. The bond side is effectively after tax, because money you do not pay in interest is not taxed. The market side is before tax, so outside a tax free account dividends carry 20% dividends tax and a disposal can trigger capital gains tax. Inside a tax free savings account the comparison is much closer to like for like.
TradeIntel is an information publisher, not a licensed financial services provider. This calculator shows what the assumptions you entered produce. It is general information, not financial advice, and the return figure is your assumption, not ours. Nothing on this page is a forecast.