Interest rates influence everything from your home loan repayment to the pace of the entire economy. In South Africa, two key rates dominate the conversation: the repo rate and the prime lending rate.
The Repo Rate – The Starting Point
The repo rate is the interest rate at which the South African Reserve Bank (SARB) lends money to banks. The repo rate is currently 7.00%.
The Prime Lending Rate – What You Actually Pay
The prime lending rate is the rate banks charge their best customers. It’s usually the repo rate plus about 3.5 percentage points.
When SARB changes the repo rate, banks adjust the prime rate by the same amount. This directly affects the cost of loans, bonds and credit cards. The prime lending rate is currently 10.50%.
Let’s look at a real-world example to see what a rate change means for your bond.
Amount: R1 000 000
Term: 20 years (240 months)
Repayment before recent cut: ≈ R10 160 pm
After recent cut: ≈ R9 990 pm
Saving: R170 a month / R2,040 a year
A 0.25% repo rate cut can save over R40 000 on a R1 million bond if the rate stays lower for the entire term.
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