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.

 

Monthly Bond Instalment

Bond amount

10%

9,75%

8,75%

7,75%

7,25%

7,00%

Monthly Saving from 10% to 7%

Saving over 12 months

Interest Saving Over 20 Years from 10% to 7%

R250 000,00

R2 413

R2 371

R2 209

R2 052

R1 976

R1 938

R475

R5 700

R113 834

R500 000,00

R4 825

R4 743

R4 419

R4 105

R3 952

R3 876

R949

R11 388

R227 667

R750 000,00

R7 238

R7 114

R6 628

R6 157

R5 928

R5 815

R1 423

R17 076

R341 501

R 1 000 000,00

R9 650

R9 485

R8 837

R8 209

R7 904

R7 753

R1 897

R22 764

R455 335

R 1 250 000,00

R12 063

R11 856

R11 046

R10 262

R9 880

R9 691

R2 372

R28 464

R569 168

R 1 500 000,00

R14 475

R14 228

R13 256

R12 314

R11 856

R11 629

R2 846

R34 152

R683 002

R 2 000 000,00

R19 300

R18 970

R17 674

R16 419

R15 808

R15 506

R3 794

R45 528

R910 669

R 3 000 000,00

R28 951

R28 456

R26 511

R24 628

R23 711

R23 259

R5 692

R68 304

R1 366 004

R 4 000 000,00

R38 601

R37 941

R35 348

R32 838

R31 615

R31 012

R7 589

R91 068

R1 821 338

R 5 000 000,00

R48 251

R47 426

R44 186

R41 047

R39 519

R38 765

R9 486

R113 832

R2 276 673

R 6 000 000,00

R57 901

R56 911

R53 023

R49 257

R47 423

R46 518

R11 383

R136 596

R2 732 007

 

“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.