You may be wondering why the amount of interest reflected on your monthly home loan statement differs from month to month.
Ann Bramhill, group public relations manager for First National Bank, says interest is calculated daily on the outstanding loan balance and is added to your account (capitalised) monthly.
The difference in the interest reflected is due to the differing number of days in a month which ranges from 28 days to 31 days.
The interest is usually capitalised on the same day every month, for example, the 30th of each month. So, in the month of November you will pay interest for the 31 days from October 31 to November 30.
In December, you would be paying interest only for 30 days, covering the period from December 1 to December 30. In January, however, you would be paying for 31 days, which would cover the period from December 31 to January 30.
Another factor which influences the amount of interest you will pay is when you make your monthly payment to the bank.
If you owe R100 000 at November 1 this year and your first instalment is due on November 30, interest is calculated at the rate quoted by the bank (for example, 19 percent) every day on the outstanding balance on that day from November 1.
Let's assume you make a payment of R2 000 on November 28. Interest will be calculated on R100 000 for every day up until November 27 and then interest will be calculated on R98 000 (capital of R100 000 less your payment of R2 000) for the three days up to November 30.
Remember that if your annual homeowner's insurance is added to your home loan, you will pay interest on that money.
The bank pays the annual premium to the insurance company and will debit your home loan account with this amount.
Check how much the insurance is and preferably arrange to pay it to the insurance company in a lump sum.
You can also ask the company to debit your cheque account monthly, but make sure you don't go into overdraft as you will pay higher interest on your overdraft than on your home loan.