- The repo rate affects the interest rate at which your bank will lend, which in turn affects the cost of your home loan.
- The repo rate was at its lowest in decades during the pandemic, but there has since been a succession of increases by the South African Reserve Bank.
- Further repo rate increases are expected for 2022.
If you’re applying for a home loan, the repo rate is one of the most important factors to take into account. Here’s what you need to know about the repo rate, and how it will affect your home loan.
Repo rate: What is it at currently?
The current repo rate is 4.75%.
This means the prime lending rate is 8.25%.
- 0.25% in November 2021
- 0.25% in January 2022
- 0.25% in March 2022
- 0.50% in May 2022
Why the increases? During the pandemic era, the South African Reserve Bank was trying to stimulate the economy. Now they are adjusting for inflation.
5 Things you should know about the repo rate:
1. The prime lending rate will always be higher than the repo rate
The repo rate is the rate at which the South African Reserve Bank lends to commercial banks. Banks lend at a rate that is a little higher than the repo rate, to cover their basic profit margin. This is known as the prime lending rate.
2. The repo rate affects your home loan
As mentioned, the repo rate affects the prime interest rate, which in turn affects the interest rate of your home loan. The interest rate is what you have to pay over and above the amount you pay monthly to the bank in order to repay your home loan.
3. How long will the repo rate remain at the current level?
FNB predicts further hikes for 2022, with each hike bringing the repo rate up a further 0.25%. The hikes will probably happen in May and July, resulting in a repo rate of 4.75% by 2023 (and a prime lending rate of 8.25%).
4. A fixed-rate home loan remains at the same interest rate regardless of the repo rate (for an agreed-upon period)
When your bond is registered, you can choose to have a fixed-rate or variable-rate loan.
Under a fixed-rate home loan, you keep paying the same home loan repayment amount monthly, regardless of fluctuations in the market, for an initial agreed period.
However, fixed interest rates expire after the initial agreed period, after which you will either have to revert to variable interest rates, or negotiate a new fixed rate with the bank.
Furthermore, it’s more of a risk for the bank, so they’re likely to charge you a higher rate out the gate.
But it does enable you to budget with greater accuracy.
5. A home loan comparison service can help you secure lower interest rates
Regardless of the repo rate, a home loan comparison service, such as ooba Home Loans, can secure you lower interest rates by submitting your application to multiple banks.
You can then compare deals and choose one with an interest rate as close to the prime lending rate as possible.
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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