How the interest rate affects you

To know how the interest rate affects you, you have to first understand that "interest" is essentially a lending "fee" that the Bank charges you for borrowing "their" money.

This fee is added to the initial loan amount known as your original capital balance, and together they make up your total loan amount which is known as your actual contract balance.

Your interest rate will be based on the Prime Interest Rate.

This is a rate that is considered a "recommended benchmark" for interest, and is expressed as a percentage.

When you borrow money from the Bank, the interest rate is usually specified in terms of the Prime Interest Rate. Your interest rate can be higher or lower than the standard Prime Interest Rate.

The interest rate that you are offered by the Bank can vary depending on a number of factors including your credit profile, the value of the loan and the loan period amongst others.

Your interest (%) is calculated on the balance of the loan at the end of every month. Calculating these amounts can be tricky, so it is advisable to make use of a bond calculator for assistance.

Interest rate tip: The shorter the term of the home loan, the less the interest you will pay. Always take this into account when choosing a contract term.