3. Why is a lower repo rate good news for homeowners?
A drop in the repo rate will mean a lower prime lending rate, and this will decrease the monthly bond payment. Those who can afford to continue their bond repayments at the higher prime interest rate, even though the repo rate has dropped, will be able to pay off their home loan even sooner. The current monthly repayment on a R1 million bond, when the prime lending rate is 7%, is about R7 750. However, if one continues to repay the bond at the amount it was when the prime lending rate was 10% – so an additional payment of almost R2 000 – it will be possible to shave almost seven years off the repayment period, and save just over R332 000 on interest.
Yes, a lower interest rate will make it possible for more buyers to afford a bond, says Coetzee. Also, companies such as BetterBond
will apply to more than one bank to secure a lower interest rate, called a rate concession. This is determined by the difference between the lowest and the best offers from the banks. By approaching more than one bank, BetterBond
is able to negotiate a better rate concession as the banks vie to offer the best deal. BetterBond
’s average interest rate concession when applying to 4 banks is minus 0.61%, which, at a prime lending rate of 7%, brings the interest rate down to 6.39%. This means a total saving of R173 700 on a R2 million bond with a 20-year repayment period.