Could a 50 Basis Point Cut Mean Good News for Your Bond Repayments?
The South African Reserve Bank’s (SARB) monetary policy committee (MPC) is set to meet for the final time in 2024 on Thursday, 21 November, and economists are predicting good news for South Africans carrying debt.
Consumer inflation has cooled for four consecutive months, hitting a low of 3.8% in September – the lowest figure since March 2021. This positive trend has fueled anticipation of a 50 basis point interest rate cut next month.
Lower interest rates would translate to smaller monthly bond repayments, potentially making homeownership more accessible for first-time buyers.
However, while a reduction in monthly payments might seem appealing, it’s essential to consider the bigger picture.
Understanding the Impact of a Rate Cut
To illustrate the impact of a 50 basis point cut, let’s look at an example:
- Current situation: A 20-year bond of R1,458,924 at the current prime rate of 11.5% costs R15,558 per month to repay.
- Potential scenario: If the prime lending rate drops to 11%, the monthly repayment would decrease to R15,059, saving you R499 per month.
Over 20 years, this seemingly small saving adds up to R119,760.
But here’s the catch: financing a R1,458,924 bond over 20 years at 11% will still cost you a staggering R3,614,123.
The takeaway: While a lower monthly repayment can be beneficial, remember that you’re essentially paying more for the loan over the long term due to the accumulated interest.
Monthly Bond Repayment Table
The table below compares the current and potential monthly bond repayments on various bond values over a 20-year period, assuming no deposit and repayments at the prime rate:
| 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 every second month.
The SARB’s final meeting of the year will take place on Thursday, 21 November.
| Month | Date |
| January | 25 January – No rate change |
| March | 27 March – No rate change |
| May | 30 May – No rate change |
| July | 18 July – No rate change |
| September | 19 September – 25 basis point cut |
| November | 21 November – ? |
Rent or Pay Off a Bond: What’s Right for You?
The decision to rent or purchase a property is a significant one, deeply affected by individual circumstances. While a potential interest rate cut might influence this choice, it’s crucial to conduct thorough financial planning and carefully consider all factors before making a decision.
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