Curse of Interest

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In a newspaper article titled: “What the banks don’t want you to know,” Karl Posel, mathematics professor and author of Personal Finance books says: “More than eight million South Africans have bonds, but few realise that banks are milking them dry.”

   “Consider the following scenario: you have a R100 000 bond repayable over 20 years at an interest rate of 19.5% a year. (Assume that this rate remains unchanged). After 10 years of monthly repayments of R1 660 you have paid R199 200 in total. Guess how much of your debt you have repaid after 10 years? A paltry R12 500. The remaining R186 700 has been nabbed by the bank as interest charges. And the situation after 16 years is even more depressing — of your total repayment of R318 720 you have paid off only R45 000 of your debt and still owe the bank   R55 000.”

 

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