The South African Reserve Bank’s decision today to keep interest rates unchanged, leaving the home loan base rate at 10.5%, brings both relief and frustration for homeowners. Relief because the widely expected hold means there is no increase in monthly bond repayments, but frustration because many had really hoped that August’s inflation decline would provide scope for another cut.
South Africa’s headline inflation eased to 3,3% in August, which was below expectation and prompted speculation that the Monetary Policy Committee (MPC) might consider lowering the repo rate from 7% to 6,75%. This was further fuelled by the Federal Reserve decision on Wednesday to drop US interest rates, and SA’s urgent need to boost economic growth and employment.
However, with inflation expected to edge higher again towards the end of the year, and with the SARB eyeing its new 3% inflation target, the MPC took a cautious stance and for homeowners, that means no change for now in their monthly bond repayments.
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With the cost of living having declined steeply since last year, though, many may find that they now have a little more leeway to take some practical steps themselves to manage their home loans more effectively, pay them off faster and make substantial savings on the overall cost of their homes.
*The first step they can take is to pay extra funds into their bond account whenever possible. Even small additional payments can shave years off the repayment term and save significant interest over time. For example, by adding just R500 to the minimum monthly repayment on bond of R1m, they would reduce the overall loan terms by 33 months and save over R230 000 worth of interest.
*Secondly, they should try to make at least one extra home loan payment every year, especially if they receive an annual bonus or 13th cheque. This will reduce the capital amount outstanding and lower the minimum monthly repayment due, making it even easier to pay more than is needed every month.
*Third, they should also try to channel any tax refunds, monetary gifts or part-time earnings into their bond accounts.
*Fourth, they should look at pruning any non-essential spending from their budgets or consolidating higher-interest debt so they can free up more cash to redirect into their bond.
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All being well, economists are expecting at least one more rate cut this year, in November, and should this materialise, it might be a good time for homeowners in good standing to negotiate for better home loan terms. And they will be in a stronger position to do so if they take control of their financial future now by adopting strategies that demonstrate their determination to reduce their debts.
