With interest rates expected to drop again, the home loan costs for most South Africans are expected to ease. Picture: Thirdman/Pexels
The South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) is expected to cut the interest rate by another 25 basis points (bsp) on Thursday, most industry experts expect.
This mooted interest rates drop is expected to have a positive impact on the wallets of cash-strapped South Africans, with lower repayments on credit card, home loans and vehicle finance debts.
This essentially means that the rates cut could allow homeowners to pay less on their monthly home loan repayments, which had been on a high since the rates hike began in November 2021.
In September, for the first time in almost four years, the SARB cut the interest rate by 25 basis points, reducing the repo rate from 8.25% to 8%, while the prime lending rate dropped from 11.75% to 11.5%.
If the SARB continues this path, as predicted by a number of analysts, then the repo rate could drop by a further 25bps to 7.75% and the prime lending rate would drop to 11.25%.
Lightstone data shows that the average cost of a property in SA is around R1.4 million.
Here’s what homeowners would pay in monthly bond repayments for a R1.4 million property using BetterBond’s home loan repayment calculator.
Currently, if a person purchased a home (without a deposit) for R1.4 million for a period of 20 years and the interest rate is 11.5% then the monthly bond repayment would be R 14,930.
If the SARB cuts the interest rate by 25bps on Thursday a person who purchased a home without a deposit for R1.4 million for 20 years would pay R 14,690 for their bond at an interest rate of 11.25%, a further R240 drop after the last rates cut drop of R242 in September.
Savings would amount to R482 since the start of the mooted interest rates cut cycle from September 2024.
Prior to September 2024, with the interest rates at 11.75%, the same R1.4 million home loan would have cost a home owner R15,172 monthly.
However, should the Reserve Bank opt to aggressively cut rates by 50bps cut, then based on the same conditions homeowners of a R1.4 million home, would pay R 14,451 for their home loan at an interest rate of 11%, realizing savings of R721 since the rates cut cycle started with the September rates cut announcement.
The news of interest rates will be welcome by thousands of cash-strapped South Africans, but if you can, it is best to continue paying more towards your home loan debt.
Bradd Bendall, head of sales at Betterbond, said that if homeowners continue to repay their home loans at the pre-interest rate cut they could see a huge change in the period they spend paying off their home loans.
“Paying more on your monthly bond amount could significantly impact the amount of interest payable over the loan period,” Bendall said.
“Anything extra that is paid into your bond will reduce the balance, and the interest payable over the loan repayment period.”
Another tip he suggested was splitting your bond instalment.
You could also split your monthly bond instalment because the earlier in the month you pay your bond, the less interest you will accumulate, Bendall said.
If your bond repayment is R10,000, arrange with the bank to deduct R5,000 on the last day of the month and the balance on the 15th.
The full amount will be paid within a 30-day period, but the interest, which is calculated on a daily basis will be reduced.
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