mortagesandforeclosures

by Susan Reynolds

Many people who are in the market for making a large purchase and need to make use of a bond often find themselves a bit confused when trying to understand how bond repayment is calculated. The overall process is actually far easier than most people realize. Much of this confusion is related to the fact that there isn?t as much readily available information on the subject as most people would expect. Despite this the process involves little more than a simple mathematical formula and a few factors.

A number of factors play into what the monthly payment will be on a bond. The most obvious factor is the amount which is actually borrowed. The larger the bond the higher the monthly payments are going to be. Another major factor in determining the monthly payments on a bond is the number of years the term is on the bond. Bond terms can vary depending on a number of factors but typically they are set for 10, 15 or 20 years. In some rare cases people can acquire a bond for as long as 30 years but this is generally considered rare. It is however, important to remember that the longer the loan the more you will pay back in interest. This is due to the fact that the interest rate will be applied to the remaining balance every month for the entire length of the loan. In fact, on a longer loan can quickly lead to a person paying back as much as twice what they initially borrowed.

The final factor which goes into determining the monthly payment on the bond is the interest rate. The interest rate on a bond is calculated using a number of different figures. Your credit history, employment status, employment history, age, existing debt, and even income all play a role in the interest rate you will pay. The higher the interest rate the more you will pay over the course of the bond and the more per month you will pay.

Now that all this information is available you need to figure out how much interest you will be paying out per month. The interest rate which is given on the bond is actually what is known as an APR or annual percentage rate. The figure which is used in calculating monthly payments is actually a monthly interest rate which is calculated by simply dividing your APR by 12. A simple example would be that if you had a 10% interest rate you would divide .10 by 12. This would result in a monthly interest rate of .0083 or .83%. The next factor which is considered is the number of months you are actually paying on the bond. If you received a bond for 15 years then you would multiply 15 by 12 to get 180. This is the number of months you are paying on the bond. Now that you have this information you can perform the actual calculations to determine your monthly payment. The formula is not very complex at all. The actual formula is M = ((((I + 1) ^ T) * I) * L) / (((I + 1) ^ T) - 1). This may seem complex but it is really not very difficult at all. M stands for the actual monthly payment. The letter I represents the monthly interest rate. T is the term that the bond will be held for in months. L is the total bond amount. So figuring on this basic formula using our basic figures the formula would look like this: M = ((((.0083 + 1) ^ 180) * .0083) * 100,000) / (((.0083 + 1) ^ 180) - 1). This when calculated equals 1072.16 per month.

Once they have this information the banks use a simple mathematical formula to determine the actual monthly payback you will have on the bond. This formula is far easier than many people believe and will quickly give you your payback. There are also many online bond calculators available freely which will allow you to easily take figures and determine what kind of monthly bond rate you will have. There are also some reverse calculators which allow you to input how much you can afford per month and they will output how much of a bond you can really afford.

About the Author:

Susan Reynolds is the webmaster for a leading South African bond originator. For more information visit: http://www.bondcredit.co.za/

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