How Does This Interest Rate Cut Affect Your Pocket?
On March 25th, 2010 the South African Reserve Bank (SARB) cut the repo rate by 0.5% to 6.5%, which also directly affects the prime interest rate in South Africa. The Prime Interest Rate is used by the major banks (ABSA, FNB, NEDBANK and STANDARD BANK) on their home loan products. If you have a bond with one of these banks, your variable Home Loan Interest Rate will be determined by the movements of the Prime Interest Rate.
The announcement by the SARB Govenor Gill Marcus, caught many by surprise. Although many economic conditions pointed to a potential cut in rates most economists expected the SARB to keep rates unchanged.
Adrian Goslett , CEO of REMAX, believes this cut is good news for the local property industry. Goslett admits that there has already been a noticable uptick in the market. He points out that the effects of the recession are wearing off and consumer confidence is being resorted. Goslett also highlights that inflation is back inside the target band of 3% and 6%. This could signal a further cut later this year.
“Inflation is expected to average 5.3% and 5.4% in 2010 and 2011 respectively, and to reach a low point at an average of 4.9% during the third quarter of 2010,” Marcus said.
But, while the forecast on interest rates and inflation looks good in the short term, you should prepare for a potential hike in rates early in 2011.
In the meantime, with the prime rate cut to 10%, if you hold a bond of R1 million at prime your installments would drop by about R330 per month – from R9 983 to about R9 650.
ABSA, FNB, NEDBANK and STANDARD BANK all agreed that they would drop their home loan interest rates as of March 26, 2010.
Below is a table illustrating the difference in your minimum bond repayments going forward.
|Bond Amount||Old Installment||New Installment||Saving|
|R1million||R9 980||R9 650||R330|
|R600 000||R5 990||R5 790||R200|
|R300 000||R2 995||R2 895||R100|
“Today’s cut takes us to historically low rates last seen in 1981. We have already noted a material improvement in consumer confidence. This, together with 2010 Fifa World Cup(tm) which is only 77 days from kickoff, augers well for the rest of 2010,” said Michael Jordaan, CEO of FNB.
SA HOME LOANS (SAHL) clients are not as fortunate though, your bonds will remain unaffected by this change. Mortgages from SAHL are based on the JIBAR rate and not the Prime Interest Rate.
For more information about the prime interest rate and how to apply for a home loan, contact us via phone, email or complete the online application form.
For more assistance with regards to applying for Home Loan finance contact one of our consultants.
Ph: 087 625 0590
or Complete An Application Form Online