Stash rate cut savings in your bond for major benefits

This week’s interest rate cut of 25 percentage points brings the repo rate to 7,75% and the prime lending rate to 11,25% - and also creates a golden opportunity for homeowners to start shortening their home loan repayment periods and saving themselves many thousands of rands on the eventual cost of their properties.

That’s the word from Stephen Whitcombe, MD of the Firzt Realty group, who notes that the latest rate drop represents a monthly repayment reduction of just R17 per R100 000 of a 20-year bond borrowed at prime, and that while this might not seem significant, it adds up to R172 a month on a R1m bond and R343 a month on a R2m bond, as Table 1 below shows.

“This comes on top of the repayment reductions brought about by the 25 percentage point interest rate cut in September and will undoubtedly make it easier for potential homebuyers to qualify for home loans and afford the monthly repayments. On a first-time-buyer home loan of R750 000 borrowed at prime, for example, the qualifying income is now around R26 200, compared to just over R27 000 in August, and the minimum monthly repayment is now R7870, compared to R8130.

“Equally important though, is the fact that these rate cuts and those predicted for next year hold out the prospect of big future benefits for existing homeowners if they decide to put all the monthly repayment savings back into their home loans now instead of spending the extra cash. All they need to do is maintain their repayments at the same level as they were in August, and the fact that the inflation rate has dropped so much in the past few months (to 2,8% in October) should make it relatively easy to do this without feeling too much strain on household budgets.”

In addition, he says, anyone who gets a pay rise in January should be planning to also allocate at least some of these extra earnings to their home loan account to help bring forward the date that their bond will be paid off and save themselves many thousands of rands in the process.”

The current average salary in SA is around R26 000, and predictions are that the average increase next year will be 6%, which would translate to an increase of around R1500. Table 1 also shows what the effects would be if homeowners were to add just a third of that to their minimum monthly bond repayment, in addition to the savings from rate cuts.   

“And finally, any employees who receive a bonus or ‘13th  cheque’ in December should consider putting at least 50% of that money into their home loan account to reduce the capital amount on which interest is charged, as this can also create a surprisingly large difference to their monthly bond repayments over time. This shown in Table 2 and can be increased by making additional one-off payments every time people receive a bonus or other additional income.”

Table 1: Potential benefits from adding to your minimum bond repayment

Table 2: Potential bond benefits from one additional repayment per year

Issued by Firzt Realty

For media inquiries contact

Stephen Whitcombe on

082 412 2949

Or visit www.firzt.co.za

About Firzt Realty 

Established in 2003, Firzt Realty initially focused on residential real estate, but has since expanded to offer a broad range of services in both the residential and commercial property sectors, including sales, rentals, auctions and property management.