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The current repo rate (+ 5 things you should know)

What is the current repo rate and how will it affect homeowners? Find out what the repo rate means for interest rates and consequently your bond.

Repo Rate

Article summary

  • 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.
  • Experts believe the increases to the repo rate may come to a halt in 2024 and perhaps even reverse.

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.

What is the South African repo rate

The current repo rate is 8.25%.

This makes the prime interest rate 11.75%

The increases in 2023
During the pandemic era, the South African Reserve Bank was trying to stimulate the economy by persistently lowering the interest rate. In 2023 they reversed this in an attempt to combat inflation.

Experts predict reduced interest rates in late 2024 Although inflation remains an issue, experts predicted that the interest rate hikes would come to a halt.

This was borne out in September 2023 when the SARB opted to leave the interest rate untouched.

This decision was repeated in early 2024. As such, as of May 2024, the interest rate remains at its May 2023 level of 11.75%.

Note: There may be uncertainty regarding interest rates, but there doesn’t have to be uncertainty regarding your bond payments. Use our Bond Repayment Calculator to determine what you will owe on bond repayments per month, enabling you to budget accordingly.

What does this mean for first-time homebuyers?

Expert’s predictions make it a good time for people to take their first step onto the property ladder, especially if predictions about interest rate drops in late 2024 come true.

Homebuyers are more likely to secure a bond and will pay less on their repayments. Lower interest rates even make it more viable to secure a 100% home loan and remove the need for a deposit.

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 slightly 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?

  • As mentioned, the repo rate has remained at the current level since September 2023.
  • According to Investec chief economist Annabel Bishop, an interest rate cut in September 2024 is likely. Later than expected, but still encouraging.

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’ll likely 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.

So apply for a home loan with ooba Home Loans and get the best deal on your bond, improving your equity in the long term.

Get a free home loan comparison.

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