In September 2021, owners of a R1,5 million home were paying approximately R11,600 a month on their home loans; today, however, they are paying about R16,200.
That is an increase of R4,600.
Similarly, if you were paying off a R2 million bond almost two years ago when the prime lending rate was 7%, you were paying R15,500 a month. Now, you are paying R21,600.
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And it does not stop there. Economists and property experts are predicting another interest rate of either 0,25% or 0,5% next week, which means homeowners will be forking out even more on their home loans.
Here we show you what you were paying on your bond before rates started increasing, and how much more you could be paying from next week:
Carl Coetzee, chief executive of BetterBond, says homeowners are understandably feeling the pinch and many are looking for ways to manage their bond repayments or reduce costs. Yet while there is little that can be done to control fluctuations in the repo rate, there are a couple of ways for homeowners to help mitigate the impact.
Choose between a fixed or variable rate
When interest rates are on the rise, he says most homeowners immediately consider the benefits of fixing their interest rate, so that it is not affected by changes in the repo rate. Whether this is the right or wrong decision, however, cannot be said.
“Each homeowner’s financial situation is unique and various factors need to be considered when evaluating the benefits of both options.”
When you apply for a home loan it is by default on the basis of a variable interest rate.
“Only once your bond has registered can you apply for a fixed interest rate and there is a strict time limit attached before the offer lapses,” Coetzee says, warning that fixed interest rates are set for up to five years maximum, which means that on a 20-year loan you will need to renegotiate the terms, and these terms could be less favourable than they were before.
“Generally, a fixed interest rate is higher than a variable rate as it poses more of a risk to the bank. It is only negotiated at the time of bond registration and the rate offered is dependent on the going rate at that specific time.”
Peg your bond repayments
You could also choose to peg your bond repayments at the current prime lending rate, Coetzee states.
“If you have managed to pay your bond at the current prime lending rate by budgeting prudently and cutting back on other expenses, consider maintaining those monthly repayments even if the repo rate drops later this year. This will help you reduce your bond repayment period and save substantially on interest.”
As an example, if you have managed to maintain your bond repayments on a R2 million at the current prime lending rate of 11.75%, continue doing so even if the repo rate drops. By paying the extra R345 a month on your bond, you will be able to shave 13 months off your bond repayment period and save R217 171 in interest over this period.
“Bear in mind that the longer the loan repayment or amortisation period, the larger the influence a change in the interest rate will have on your repayments.”