How a lot you will save if SARB does reduce rate of interest
The South African Reserve Bank’s (SARB’s) financial coverage committee (MPC) will meet for the ultimate time in 2024 on Thursday, 21 November – and there’s broadly anticipated to be extra GOOD information for these South Africans in debt.
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As reported by The South African website earlier this week, annual shopper inflation cooled for a fourth consecutive month, easing to 3.8% in September. This represents the bottom determine since March 2021.
As a consequence, economists at the moment are bullish a few 50 foundation level reduce subsequent month.
That would imply decrease month-to-month bond repayments – and excellent news for these patrons trying to enter the property marketplace for the primary time.
However, as reported by The South African website, paying a diminished quantity in bond repayments every month is NOT at all times the good factor to do!
Here’s WHY.
Finance debt
As a reminder, there was welcome information when the SARB’s six-member financial coverage committee reduce the rate of interest by 25 foundation factors in September this 12 months.
That meant that the repo charge now stands at 8% and the prime lending charge at 11.50%.
The MPC had hiked rates of interest by a complete of 475 foundation factors since 2021 till the newest announcement.
That had represented a 15-year excessive (since 2009) and had a number of South Africans struggling to finance their debt.
What would a 50 foundation level reduce imply in financial phrases?
By manner of an instance (see graph under), following the speed reduce in September, 20-year repayments at prime (11.5%) on the common home bond in South Africa of R1 458 924 at the moment prices R15 558 per thirty days to finance.
Should the SARB reduce that prime lending charge to 11%, that might imply a brand new month-to-month bond compensation of R15 059.
That represents a month-to-month saving of R499.
Over the course of 20 years (240 months), that equates to a complete saving of R119 760 – on the (unlikely) assumption that there aren’t any additional charge adjustments throughout that interval.
But listed here are the scary numbers …
To finance a R1 458 924 bond over 20 years on the forecast prime lending charge of 11% will NOT price R1 458 924.
In truth, it is going to price a staggering R3 614 123.
Do the sums your self …
R15 059 x 240 months = R3 614 160 (give or take a couple of rands)
Monthly bond compensation desk
The South African website’s desk under compares the present month-to-month bond repayments on numerous bond values over a 20-year interval assuming no deposit and repayments at prime, to the probably new price after subsequent month’s anticipated 50 foundation level reduce – and the month-to-month saving that might entail:
| Bond | Current (11.5%) | New (11%) | Saving |
| R750 000 | R7 998 | R7 741 | R257 |
| R800 000 | R8 531 | R8 258 | R273 |
| R850 000 | R9 065 | R8 774 | R291 |
| R900 000 | R9 598 | R9 290 | R308 |
| R950 000 | R10 131 | R9 806 | R325 |
| R1 000 000 | R10 664 | R10 322 | R342 |
| R1 458 924 | R15 558 | R15 059 | R499 |
| R1 500 000 | R15 996 | R15 483 | R513 |
| R2 000 000 | R21 329 | R20 644 | R685 |
| R2 500 000 | R26 661 | R25 805 | R856 |
| R3 000 000 | R31 993 | R30 966 | R1 027 |
| R3 500 000 | R37 325 | R36 127 | R1 198 |
| R4 000 000 | R42 657 | R41 288 | R1 369 |
| R4 500 000 | R47 989 | R46 448 | R1 541 |
| R5 000 000 | R53 321 | R51 609 | R1 712 |
SARB MPC MEETING DATES FOR 2024
The MPC meets each second month.
The SARB’s remaining assembly of the 12 months will happen on Thursday, 21 November.
| Month | Date |
| January | 25 January – No charge change |
| March | 27 March – No charge change |
| May | 30 May – No charge change |
| July | 18 July – No charge change |
| September | 19 September – 25 foundation level reduce |
| November | 21 November – ? |
Rent or repay a bond: What do YOU do?
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