As little as R500 extra a month can save you R200 000 in the long term.

Here’s how to do it…

If you’ve taken out a mortgage recently, you may have noticed on your mortgage statement that the interest charged each month is nearly equal to your monthly repayments. In the first few years of your mortgage repayment, interest makes up a very large part of the payment. In the example below, a mortgage of R750 000 at 10% interest rate would have a repayment of R86 851 per annum of which only R12 410 goes to reducing the capital amount.

As inroads are made into reducing the capital, so the amount of interest paid reduces, allowing more money to go towards settling capital so by year 10, R30 411 is going to capital and in the final year 95% of the payment goes to the capital portion.

This is why paying a bit extra each month into your mortgage can be so powerful – because every extra rand goes to settling capital and therefore accelerating the reduction in interest paid.

The below graph illustrates various amortisation (payment) curves and the impacts on home owners depending on how much they’re paying into their mortgage each month.

This graph illustrates a loan of R 750 000 at an interest rate of 10% per annum over 240 months (20 years). The assumption is interest rate remains at 10% for the entire loan term.

Normal amort (blue line)
If you pay the minimum instalment amount, you’ll pay the mortgage off after 240 months. Over the period you would have paid R987 038 in interest alone.

Additional payments (green line)
If you pay an additional R500 per month, you’ll pay off the mortgage in 200 months (just under 17 years) and save R200 000 in interest payments.

Short payment (red line)
If you pay R500 less than required, or if you have erratic payments, you’ll still owe just under R400 000 on your home after 20 years.

With an ominous start for the financial markets this year, we ask whether there’s a light at the end of the tunnel or if it’s an oncoming train? Stanlib Director Paul Hansen takes a look at the year ahead.

Happiness isn’t an elusive state that some people are blessed with by pure luck of the draw. Your happiness quotient impacts your outlook on life and work. Here’s how to boost it.

After a year’s delay, the 2015 Tax Amendment Bill has finally been signed into law and will impact your retirement savings – positively.

Being financially sound isn’t rocket science, but we often forget the basics. Try these simple ways to improve your bottom line this year.

Got a question? We're here for you!

Thank you for the feedback we have received on these newsletters so far. Your comments and suggestions will help us to give you relevant information for planning and managing your finances. Please keep talking to us and telling us what you think by contacting us via the channels below.

Alternatively, you can click here to participate in our online poll.