It seems that most of us are constantly bemoaning the state of the economy, rising basic service costs, the price of petrol and the exorbitant food prices. However, there is some good news out there - the repo rate has remained unchanged at five percent. While this may not be terrific news for those who bank on receiving higher interest payments on their investments, it is making a difference to those who own property in this country.
“With the variable mortgage interest rate also remaining the same, at 8.5 percent, monthly home loan repayments are currently almost 36 percent lower than they were in December 2008, when the recession hit and the Bank began cutting rates,” says Shaun Rademeyer, CEO BetterBond Home Loans.
“And this is most important for prospective homebuyers, because it makes it a great deal easier for them to qualify for home loans, and to afford the monthly repayments.”
He notes that in December 2008, when the variable mortgage rate stood at 15.5 percent, buyers required a household income of just under R48 000 to qualify for a R1-million bond. Today, with the rate at 8.5 percent, the income required is only about R28 000 – which obviously brings home ownership within reach for many more consumers, even though additional credit criteria are now applied in terms of the National Credit Act, he says.
The lower rate means that the minimum monthly repayment on a R1-million loan has dropped from R14 340 to R8 364.
However, Rademeyer says, neither homebuyers nor homeowners should be complacent. “Although the Reserve Bank expects the inflation rate to drop back to below 6% before the end of the year, economists expect that the Bank will have to start raising interest rates again from about the middle of next year.
“A change of just one percentage point can make a major difference to the affordability of housing. Consequently, we suggest that those with plans to buy should do so as soon as possible, and with as big a deposit as possible. This will not only improve their chances of obtaining a home loan but will also lower their monthly repayments and enable them to cope more easily if and when rates do start to rise.”
As for existing homeowners, he says, they should be taking the opportunity now while rates remain at these historic lows to pay an additional amount into their bond account every month and reduce the capital portion of the loan. “This will not only put them in a better position to deal with future interest rate increases, but also enable them to pay their whole loan off much more quickly and save many thousands of rands in interest.”
Unfortunately, there are many who are too entrenched in their comfort zones and who assume that interest rates will remain low forevermore. Choosing to invest in property when the rate is low could lead to savings of thousands. This is not some media spin dreamed up by real estate companies in order to boost sales. It is excellent advice for those who want to gain the upper hand from the second they become a homeowner.