The Monetary Policy Committee (MPC) for the South African Reserve Bank (Sarb) has cut the interest rate by 25 basis points which means that homeowners will save on their monthly home loan repayments.
However, to reap the best rewards of the repo rate cuts long term, homeowners are being urged to carry on paying their home loans at the pre-interest rates level, which could save them over two and half years in repayments for their mortgage bond.
Bradd Bendall, head of sales at Betterbond, said that the interest rate cut will bring some much-needed financial reprieve for consumers.
“The meaningful change comes if homeowners continue to repay their home loans at the pre-interest rate cut amount against a reduced monthly repayment. The period of the bond will reduce by approximately 2,5 years on a R1 million bond,“ Brendell said.
The interest rate cut means that the repo rate went from 8.25% to 8% while the prime lending rate in the country dropped from 11.75% to 11.50%.
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 before the interest rate cut and after the interest rate cut. (Figures calculated using BetterBond home loan repayment calculator)
Previously, if a person purchased a home without a deposit for R1.4 million for a period of 20 years and the interest rate was 11.75% then the monthly bond repayment would be R15,172.
Now, if a person purchased a home without a deposit for R1.4 million for a period of 20 years and the interest rate was 11.5% then the monthly bond repayment would be R14,930.
This means that the person would save R242 a month and R2,904 yearly.
According to property platform Under One Proof, the 25 basis point cut will reduce home loan repayments as follows:
| Home loan | Home loan payment (11.75%) | Home loan payment (11.5%) | Saving |
| R750,000 | R8,128 | R7,998 | R130 |
| R900,000 | R9,753 | R9,598 | R155 |
| R1 million | R10,837 | R10,664 | R173 |
| R1.5 million | R16,256 | R15,996 | R260 |
| R2 million | R21,674 | R21,329 | R345 |
| R2.5 million | R27,093 | R26,661 | R432 |
According to Bendell, the long-awaited cut can be attributed to the consistent decline in the consumer price index and the edging of inflation closer to the midpoint of the Sarb’s target range.
Bendell said that he hopes that this positivity will be reflected in the housing market, with slightly lower interest rates making it possible for more buyers to invest in property.
According to Bendell, BetterBond has already seen a 6.5% quarter-on-quarter pick-up in bond applications, and this trend is expected to continue over the next few months if the prime lending rate continues to drop as economists expect.
Executives in the property sector are hoping for a sustained period of interest rate cuts, while some economists expect the repo rate to hit 7% at this stage next year.
IOL Property