Repo rate cut – what does it mean for you?

Category Market News

The Reserve Bank recently announced a 0.25% decrease in the repo rate. But how will this affect your home loan?

The repo rate, AKA repurchase rate, is the interest rate at which the South African Reserve Bank lends money to banks. The decision was made to cut interest rates by 25 basis points. This means the repo rate has gone from 6.75% to 6.5% and the prime lending, which is the interest charged by banks to clients, is now at 10% as opposed to 10.25%.

An unchanged repo rate means an unchanged interest rate for consumers – so your debt doesn’t cost you any more or less than before. The decision by the Reserve Bank to cut interest rates will save you R39 900 on a R1 million bond over a 20 year period – this makes clearing debts a little easier.

But, while debt is generally considered a liability, there is such a thing as good debt – debt that increases your financial position over time. With interest rates still at historically low levels, now is the time to consider buying a house if you’ve been holding off on it. This means you can benefit from low interest rates and invest in a future asset. 

Notably, the interest rate cut adds positive sentiment to the property market. A cut in interest rates lowers the cost of mortgages, which essentially makes it more affordable for consumers to leverage their property. This positive sentiment should increase the demand for residential property. 

“The current South African property market outlook remains cautiously favourable with moderate house price growth, relatively low interest rates and an increased appetite from the major lenders to lend,” said Rhys Dyer, CEO of bond originator ooba.

But, you’d rather save your money?

Many people make the mistake of choosing rather to put money away into a savings account, while still paying off debt. The thinking behind this is “Well, at least I am putting something away for the future. It’s better than nothing”. The trouble is over time you're actually losing money. But how? Well, interest on a loan is often higher than interest in an investment. Your finances would be better off getting into the property market now.

It’s a buyer’s market, which means it’s time for you to invest. Let us help you find your next property.

Author: Century 21 South Africa

Submitted 05 Apr 18 / Views 749

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