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How to make the most of steady interest rates

Private Property South Africa
Press |
How to make the most of steady interest rates

How to seize the opportunity, and use the current sturdy interest rates to your benefit.

There are two ways to react when things are going well. Either one can relax and enjoy the season of good news, or one can seize it as an opportunity to make the inevitable challenging seasons ahead a little more bearable. While South Africans may celebrate the Monetary Policy Committee’s (MPC) announcement to keep the prime lending rate unchanged at 10.25% and the repo rate at 6.75%, they should also prepare for the possibility of higher interest rates as the year progresses.

“I would recommend that homeowners tighten their belts now in preparation for incremental increases throughout 2019 by investing an extra 0.25% of their home loan instalment in an interest-bearing account. That way, if an increase occurs, homeowners will be prepared for living off a slightly smaller amount. Also, there will be a little emergency money set aside to provide for some financial breathing space if necessary,” says Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.

Alternatively, Goslett suggests that homeowners reinvest the money they would have spent if interest rates had increased straight back into their home loan. “By means of an example, a R1,500,000 property at a 10.25% interest rate will cost you over R3,500,000 over a 20-year period of instalments. The monthly instalments would work out to be roughly R14,700. By putting in just an extra R300 per month towards your bond, the repayment period would be shortened by over a year, saving you R130,000 – enough to buy an entry-level car. Putting in an extra R500 per month would shorten the repayment period by two years and save you around R200,000, which is enough to buy a slightly nicer car or put your kid through high school with some change to spare,” says Goslett.

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