Nearly everyone who has come to a point in their life where they are looking to acquire a bond for the purpose of making a large purchase runs into the same problem. Most people simply don?t understand how the repayment is calculated. The truth is that it may seem fairly complex and somewhat confusing but it is actually quite simple. The monthly payback is figured using a fairly simple formula which is based on a few factors.

The most important and first factor which goes into figuring out what a monthly payback will be on a bond is the actual bond amount. This number is obviously based on what you are looking to purchase and also how much you can afford to pay back over the course of a specific amount of time, but simply put the higher the bond amount the higher the monthly payments. The next factor which plays a major role in determining what the monthly pay back will be on a bond is the term length on the bond. 15 years is the most common but 10 and 20 are also fairly common. On some rare cases 30 years may even be an option for people. One important thing to remember about the bond term however is that despite the fact that longer terms lead to lower monthly payments they also lead more money being paid out in interest.

The next major factor which is applied in determining the monthly repayment amount on a bond is the interest rate. Many factors are considered when determining the interest rate on a bond. The most important factor is the credit rating of the person getting the loan. People with excellent credit histories will often get a significantly better interest rate than people with poor histories. In some cases, the length of the term can also impact the interest rate. This is because banks consider longer bond terms to be higher risks so they often include higher interest rates.

After these simple figures have been determined the bank now needs to figure out how much interest you will be paying per month. The interest rate that you receive is actually an APR or annual percentage rate. This rate is based on an entire year. To acquire your monthly interest rate you take the APR and divide it by 12.

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.

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

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