The South African Reserve Bank (SARB) is the countryโs central bank, responsible for managing currency and inflation. Its Monetary Policy Committee sets the repo rate (the rate at which it lends to commercial banks) to meet economic targets (as of August 2025, the repo is 7.00%, making banksโ prime ~10.50%). In broad terms, a higher repo rate makes borrowing more expensive (slowing spending) and a lower repo rate makes loans cheaper (encouraging lending). In practice, SARB adjusts the repo to keep inflation around its 3โ6% target range. These repo decisions ripple through the economy โ including the home loan market.
Understanding SARBโs Repo Rate
Image: A financial calculator and pen on a desk (illustrative). The repo rate is the interest rate commercial banks pay when they borrow money from the SARB. Changing the repo rate is a key monetary policy tool: raising the rate helps cool inflation, while cutting it encourages borrowing and investment. All repo decisions aim to keep inflation near SARBโs 3โ6% target range. As the repo changes, banks adjust their lending rates โ which means home loan costs will shift too.
From Repo Rate to Prime Lending
Banks lend to consumers at the prime lending rate, which is typically the repo rate plus a set margin. Nedbank notes that โthe prime interest rate is linked to the repo rate. So, when the repo rate changes, the prime interest rate also changesโ. In other words, when SARB raises repo, banks generally raise prime by the same amount (and vice versa). Most home loans in South Africa are quoted as โprime + X%.โ This means a higher repo directly increases your bond interest and repayments. Rawson Property explains that if the repo goes up, prime goes up, and โthe amount you pay on your bond climbsโ.
How Repo Rate Changes Affect Your Home Loan
When the repo rate rises, banks increase loan interest rates and your bond payments go up. Nedbank explains that a higher repo causes โinterest rates on your home … loans [to] increase, which in turn will increase the monthly repaymentsโ. A repo cut has the opposite effect: loan costs drop and monthly payments decrease. Even a small change can add hundreds to your monthly bill.
For many, the key question is โhow interest rates affect home loansโ: the answer is direct โ a higher repo means higher bond interest and payments, and a lower repo means cheaper loans. To see this, consider a R1,000,000 bond over 20 years. Using the standard amortization formula, at 10.00% interest the monthly repayment is roughly R9,650. If the rate rises to 11.75%, the payment jumps to about R10,837 โ an increase of ~R1,187 per month. Standard Bank provides a similar illustration: raising an 8% rate to 10% on a R1m bond increases the payment from ~R8,364 to ~R9,650 (ฮโR1,286). These examples show how even modest rate hikes can significantly increase your bond repayments.
| Interest Rate | Monthly Repayment (R1m, 20 years) |
|---|---|
| 10.00% | R9,650 (approx.) |
| 11.75% | R10,837 (approx.) |
(Example uses standard bond amortization.)
In summary, any change in the repo (and thus prime) directly flows through to your bond interest and instalment. Use a home loan interest calculator or amortisation table to model how different rates will affect your payments.
Tips for Managing Rate Hikes
- Review your budget and reduce debt. When rates rise, carrying large debts becomes costlier. Pay down high-interest loans and trim discretionary spending so you can absorb higher bond payments.
- Negotiate or refinance your loan. Ask your lender if a better rate is available, or consider switching to another bank. Refinancing can reduce your interest burden โ Standard Bank notes that refinancing or debt consolidation may allow you to lower monthly repayments. Strauss Daly points out that if rates have dropped since you took your bond, switching to a new loan can โhelp you save a significant amountโ over the life of the mortgage.
- Shop around for the best rate. Use a home loan interest calculator and compare offers from multiple banks or brokers. Ooba recommends applying to several lenders at once so you can choose the lowest interest package.
- Consider fixed vs. variable rates. Fixed rates lock in your interest for a set period and give payment certainty, which can protect you if rates are rising. Variable (prime-linked) rates usually start lower and let you benefit if SARB cuts rates, but be prepared for higher payments if rates climb.
- Maintain a strong credit profile. A high credit score (e.g. 670+) and larger deposit give banks confidence and can earn you a lower interest rate. Avoid missed payments and improve your credit record where possible to qualify for better terms.
- Boost your savings. Higher interest rates often mean better returns on savings. Keeping extra cash invested means you could earn more interest as a buffer when rates rise.
Advice for First-Time Homebuyers
First-time buyers should take advantage of any rate improvements. Before you start house-hunting, get pre-approved for a bond. Pre-approval tells you exactly how much you can borrow and shows sellers youโre serious. Aim for a higher deposit if possible: lenders give better rates (and thus lower repayments) when your loan-to-value is smaller. Consider how you structure your loan: fixing a portion locks in todayโs rates for stability, while keeping some variable allows you to benefit if rates fall. Always calculate your affordability: use a home loan interest calculator to see how different interest rates and terms affect your budget.
Advice for Existing Homeowners
If you already have a home loan, stay proactive. Variable-rate borrowers should update their budgets for rate changes โ a higher prime means a higher instalment. Fixed-rate borrowers need to note when their fixed term ends: you may want to refinance or switch lenders before your term expires, especially if current rates are lower. Strauss Daly notes that switching your bond to a lower-rate lender could save a โsignificant amountโ in interest (though consider any cancellation fees). Also, with more equity or a better credit score than before, ask your bank if they can re-price your loan at a lower margin. In all cases, keep paying on time and avoid new high-interest debt so your credit stays strong.
Even if you have a bond, build savings when you can. High interest rates often mean higher returns on deposits, so hold onto your extra cash to earn more as a buffer.
By understanding how the SARB repo rate flows through to prime and bond rates, you can anticipate changes in your mortgage costs. Armed with that knowledge โ and using tools like budgeting and a home loan interest calculator โ both new buyers and current homeowners can navigate rate changes more confidently and keep their home loans affordable.
