Your 2020 bond saving was your 13th cheque

Lower interest rates resulted in bond savings of almost a full month’s salary last year

There’s no denying that 2020 was a year filled with challenges, but there was also a silver lining. With five consecutive repo rate cuts , dropping the prime lending rate from 10% in January last year to the current 7%, the average South African homeowner, who is paying off a variable rate mortgage, saved over R28 000 on bond repayments over the past 12 months.

Says Carl Coetzee, CEO of BetterBond: “At a time when many South Africans did not receive a 13th cheque, due to financial constraints resulting from the impact of COVID-19, this saving is substantial.”

If one considers that the average after-tax income for bond applicants in November was just over R35 000, based on BetterBond’s data which shows that the average gross income for bond applicants was R46 000, the annual savings in bond repayments would be close to a full month’s salary. The bond repayment saving over 12 months is calculated using November’s bond applications where the average purchase price was just over R1.2 million.

The table below shows how much has been saved on monthly bond repayments, with the prime lending rate dropping from 10% in January, to the current 7% –  if homeowners adjust their monthly repayments accordingly.

“The good news is that the South African Reserve Bank has forecast that the next gradual repo rate increase will only be towards the end of 2021,” says Coetzee. “So homebuyers will still benefit from these savings for the next few months.”

It was also a good year for homeowners who chose to continue repaying their bond at the prime lending rate of 10%. Working again on BetterBond’s average purchase price in November, we see that a homeowner who continued to repay a R1.25 million bond at the 10% it was in January, saved almost R403 000 on interest and will pay off their home seven years sooner. By paying in the additional amount, the loan repayment period dropped from 20 to just over 13 years.

“Much has been said about the impact of the record-low interest rates, as well as the favourable lending environment, on the recovery of the property market. But it is only when one looks at how this translates into actual savings for the average consumer, whether they choose to adjust their bond to make the most of the immediate relief the lower interest rate offers or, they opt to pay more to reduce their loan repayment period, that one realises the significance of the SARB’s aggressive repo rate cuts last year,” says Coetzee.

“These savings will continue in 2021, as the prime lending rate looks set to remain in single digits for several months yet,” concludes Coetzee.