This week's cut in interest rates will put money back in your pocket again, but the best policy is still to pay off your debt.
The interest rate decrease by banks this week - the 12th consecutive cut in less than three years - means you have almost R10 000 a year more in your pocket on a R100 000 home loan on the new base rate of 13.75 percent than when interest rates were at their peak of 24 percent in September 1998.
The major banks this week announced a decrease of 0.75 percentage points, from 14.5 percent to 13.75 percent a year, in their home loan rates - almost 11 percent lower than the 24 percent charged in September 1998.
If you had maintained your monthly repayments at the 24 percent interest rate, on a R100 000 home loan taken out over 20 years, you would have slashed more than R145 000 off the interest you would have had to pay the bank over the loan term. You could have repaid your loan in just over six years.
It is never too late to start to make a concerted effort to repay your home loan, which for most people represents their biggest debt.
You would be wise to control the urge to splurge and make the most of the latest interest rate cut to pay off your home loan sooner.
Assuming you have a R100 000 loan, at the base home loan rate of 14.5 percent over 20 years, your monthly repayments would be R1 280. After the latest cut kicks in, your monthly repayment will drop to R1 225 - about R55 more in your pocket every month.
The latest 0.75 percentage point decrease means you have to pay about R655 (R54.59 x 12 months) less on your home loan over a year.
If you maintain your present repayments at R1 280 instead of pocketing the R55 - which is bound to disappear into that great hole of costs every household faces - you can save yourself almost R41 000 in interest over the life of your bond and, what is more, you will be able to repay your loan in 16.5 years instead of over 20 years.
Borrowers generally qualify for a discount off the base home loan rate, which can be up to 1.5 percent off the base rate. Use the table below to calculate by how much your monthly home loan repayment has decreased.
HOW TO CALCULATE YOUR MONTHLY BOND REPAYMENT DECREASE
New interest rate
14.50%14.25%14%13.75%13.50%13.25%13%12.75%12.50%
Remaining term
5 years0.39310.39180.39070.38950.38830.38690.38570.38450.383410 years0.45820.45620.45410.4520.44990.44770.44560.44340.441315 years0.51250.51010.50760.50510.50260.50.49750.49480.492220 years0.5530.55070.54830.54590.54350.54090.53830.53560.5329
Step 1:
Divide the outstanding capital balance on your bond by R1 000 to get what is called the capital factor.Example: R100 000/R1 000 = 100Step 2:
To calculate the new interest rate you will pay, deduct 0.75 percentage points from your existing rate.Example: 14.5 percent - 0.75 percent = 13.75 percent Step 3:
Multiply your capital factor (from step one) by the appropriate figure in the table above (using the interest rate you calculated in step two)and the number of years remaining in the term of your bond to calculate your lower monthly repayment.Example: 100 x 0.5530 (20-year bond) = R55.30 a month To calculate how much you can save by maintaining your present monthly bond repayment, use our Extra Payments Calculator in the Financial Tools section.Information supplied by the Home Loans Division of Standard Bank