Lower rates cut mortgage payments by thousands - here's how SA home-owners can save even more
- The prime rate has fallen by 10% from the start of the year to 7.25% this year.
- On a new home loan of R2 million, this could mean a monthly saving of more than R3,000.
- By leaving your monthly instalment unchanged, or using the saving to repay high-interest debt, you will save even more.
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After another interest rate cut this
week, the prime rate is now at 7.25% - from 10% at the start of the year.
On a new car loan of R200,000 (for a loan over five years, two percentage points above the prime rate), this means you are now paying R300 less a month than at the start of the year.
On a R20,000 personal loan (now at 18% over 24 months) you will save only around R30 since the start of 2020; the new instalment will be around R1,120.
But on a home loans, the cuts make a
If you took out a new R2 million home
loan at the start of the year (at the prime rate, over 20 years), your monthly
instalment has fallen from R19,300 to around
R15,800 – a saving of R3,500.
Given that the value of your house has also fallen by anything from will also fall by between 4% to 20%. this would bring some consolation.
For many people who have lost their income during lockdown, the monthly saving will bring huge relief.
But if you don’t urgently require the cash to stay afloat, there are two other ways you can make the rate cut work harder:
Keep your home-loan repayments
If you kept your bond payment unchanged and don't pocket what you save on instalments due to the lower interest rate, you will pay off your home earlier and save a massive amount in interest.
Take for example a R2 million home
loan over twenty years. Instead of allowing your monthly instalment to go down
with this week’s cut by about R610, you can keep it unchanged and stick to the
If you do it near the start of your
mortgage, it could cut your home loan repayment period by a year and a half.
And you will save more than R167,000 in interest. (And if you keep your
instalment unchanged after the three recent rate cuts, you will pay off your
house almost 6 years early – and save R640,000 in interest.)
It is simple to arrange, just contact
your bank to keep your payment at the current level.
Ideally, you should at the same time
adjust the term of your home loan to shorten it, otherwise you may have to pay
fees and charges even after you have paid off your home loan. A home loan needs to go through a
cancellation process with a conveyancer in order for the property to be
transferred into your name.
Use your home-loan saving to repay
You could also choose to channel your home-loan rate-cut saving to debt with higher interest rates, particularly credit cards and personal loans.
On a personal loan of R20,000 over
three years, at an interest rate of around 19%, you will pay interest of around
But say you were a year into the
loan, and you now have an extra R610 from your home loan thanks to this week’s rate
cut. If you added the R610 to your loan repayments, you could end up paying it
off 12 months early and save more than R1,500 in interest.
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