- The interest rate on your home loan is affected by the repo rate, which is determined by the South African Reserve Bank.
- Following a succession of cuts, the SARB raised the interest rate by 0.25% in November 2021, and by another 0.25% in January 2022.
- A home loan comparison service can get you lower interest rates by submitting your home loan application to multiple banks, allowing you to compare deals.
The interest rate on a home loan will vary depending on what the bank is willing to offer, and how much of a risk they consider you to be.
But aside from your own financial situation, a significant factor affecting interest rates will be the repo rate, which is determined by the South African Reserve Bank. The repo rate refers to the rate at which the SARB will lend to commercial banks.
The repo rate in turn determines the prime lending rate, which is the repo rate plus what the banks add on in order to make a profit.
What is the current prime lending rate?
As of May 2022, the prime lending rate in South Africa is 8.25%. It was increased by 0.25% in November 2021, and by another 0.25% in January 2022.
This increase follows a succession of interest rate cuts in 2020, which brought the interest rate to the lowest it had been in decades.
These cuts were intended to keep the property market going during the tough Covid lockdown period. The November and January increase signals that the South African Reserve Bank is attempting to adjust for rising inflation. More rate hikes are predicted for 2022.
What does this mean for your home loan?
To put this in perspective; before the interest rate hikes, a R1 000 000 home loan, with a term of 20 years and a R100 000 deposit, would have cost you R1 674 646, with monthly repayments of R6 978.
Following the interest rate hikes, the same home loan would cost R1 740 081 (a difference of R65 435), with monthly repayments of R7 250.
You can use our Bond Repayment Calculator to determine how much you’ll pay on a home loan.
Other factors that affect interest rates
As well as the prime interest rate, your financial situation will affect the interest rate that the bank charges on your home loan.
Your credit record
The most significant factor is your credit record, which is affected by things such as your level of debt, and how timeously you pay your bills. Anything above 670 is considered an excellent credit score, and is likely to earn you lower interest rates.
The size of your deposit will also affect your interest rates. The higher the deposit, the less risk to the bank, and therefore lower monthly repayments and interest rates.
Using a home loan comparison service
One of the most effective ways to achieve lower interest rates is to use a home loan comparison service such as ooba Home Loans.
We submit your home loan application to multiple banks, and since different banks offer different packages, some of the banks may offer lower interest rates than others.
So we give you the opportunity to compare deals offered by the banks and choose the one with the most favourable interest rates.
We also offer a range of tools that can make the home buying process easier. Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.
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