Interest rate cut: How much you’ll save on the AVERAGE bond per month

There was welcome news for those South Africans looking to enter the property market – as well as those currently paying off bonds – on Thursday when the South African Reserve Bank’s (SARB’s) monetary policy committee (MPC) cut the interest rate.

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As was expected, the MPC’s six-member panel cut interest rates by 25 basis points (bps).

“The SARB’s decision to trim interest rates by 25 bps was to be expected, considering South Africa’s still sluggish economic growth. While the repo and primary lending rates may have dropped, stimulating borrowing and investing, it may be perceived as a double-edged sword. Although it lends strength to the rand, the central bank’s decision raises concerns about bond repayments on a short to a long-term basis. Meanwhile, the Federal Reserve’s readiness to cut interest rates, with some economists forecasting further downward rate adjustments throughout 2025, seems to have provided momentum to USDZAR. Traders must continue to exercise caution and closely watch the upcoming key economic releases”, said Terence Hove, Senior Financial Markets Strategist at Exness, a global multi-asset brokerage firm.

Lesetja Kganyago, Governor of the South African Reserve Bank, confirmed in his announcement that the MPC discussed both a 25 basis point and a 50 basis point cut, but ultimately reached consensus on the former.

The repo rate now stands at 8% and the prime lending rate at 11.50%.

The MPC had hiked interest rates by 475 basis points since 2021, despite keeping the rate unchanged for the last seven meetings – until Thursday’s announcement.

That had represented a 15-year high (since 2009) and had several South Africans struggling to finance their debt.

What does a 25 basis point cut mean in monetary terms?

By way of an example (see graph below), prior to Thursday’s rate cut, the 20-year repayments at prime (then 11.75%) on the average house bond in South Africa of R1 458 924 would’ve cost R15 810 per month to finance.

Following the SARB’s decision to cut that prime lending rate to 11.50%, that now means a monthly bond repayment of R15 558.

That represents a monthly saving of R252.

Over the course of 20 years (240 months), that equates to a saving of R60 480 – on the (unlikely) assumption there are no further rate changes during that period.

But here are the scary numbers …

To finance a R1 458 924 bond over 20 years at the new prime lending rate does NOT cost R1 458 924. In fact, it will cost a staggering R3 734 015.

Do the sums yourself:

R15 558 x 240 months = R3 733 920 (give or take a few rands)

But here’s the scariest part of all …

As highlighted above, the SARB had hiked interest rates by 475 basis points over the last three years, meaning in 2009 the prime lending rate stood at 7%.

The same calculation above on a R1 458 924 bond at prime (7%) over 20 years once cost R11 311 per month.

That’s R4 247 less per month than it costs as of today.

Or … R1 019 280 over the course of the full 20 years if you prefer.

Monthly bond repayment table

The South African website’s table below compares the now old monthly bond repayments on various bond values over a 20-year period assuming no deposit and repayments at prime, to the new cost after Thursday’s 25 basis point cut and the monthly saving that entails:

SARB MPC MEETING DATES FOR 2024

The MPC meets every second month.

The SARB’s final meeting of the year will take place on Thursday, 21 November, where, according to experts, another 25 basis point cut is potentially on the cards.

To rent or pay off a bond: What do YOU do?

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