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Categories: Loans News

Here’s how much the latest rate cut will save you on a 1 million bond

This week Reserve Bank Governor, Lesetja Kanyago’s surprise interest rate has been welcomed with joy by the real estate market.

Governor Kanyago dropped repo rate by 100 basis points, to 4.25% per year. This drop, effectively puts the prime lending rate to 7.75%.

We spoke to Philani Veba a Property Investment expert to unpack this decision for us.

Understanding the impact of the Interest Rate Cut

The past few weeks the South Africa has been battered with bad news, ranging from tumbling of the stocks to the rand continuing on a downtrend. However, this 1% drop in the interest rate allows for more savings, said Mr Veba.

“Right now what South Africa needs is anything that will reduce the financial burden on the consumer. And cutting the interest rate, does just that.”

“Cutting the interest will reduce the annual repayment amount by approximately around 1%. And that is a significant drop.”

Who will benefit from the Interest Rate Cut

“Most home buyers are young people who are in their prime in contributing to the economy. Considering the impact of the COVID-19 pandemic, they certainly need some sort of relief as they plan to navigate their lives post the pandemic.” – added Mr Veba

However, it should be noted that the government will lose revenue because of this decision. But the Government will probably recover all that revenue through tax collection from all the Property Market players, he said.

While this all sounds good, it nevertheless does not change the economic woes faced by South Africa. News24 Columnist Mpumelelo Mkhabela in his recent column said the Government should take heed of Governor Kganyago’s advise to put in place structural adjustments to save the economy.

“The unheeded calls for structural reforms ensured that, when Covid-19 struck, we were in an economically weaker position. We were short on contingency reserves, which are partly the reasons why Mboweni is talking to a number of funders, including the International Monetary Fund.” -Wrote Mkhabela

The effect of the new interest rate on a 20-year bond:

Bond AmountInterest savings over 20 yearsMonthly Savings
R 250 000R 37 657R 157
R 500 000R 75 315R 314
R 750 000R 112 972R 471
R 1 000 000R 150 629R 628
R 1 250 00R 188 286R 784
R 1 500 000R 225 944R 942
R 2 000 000R 301 258R 1 255
R 3 000 000R 451 887R 1 883

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