The year has started off on a positive note with a welcome drop in the repo rate, but economists have cautioned that global uncertainty – including the impact of US President Donald Trump’s policies – could temper the rate-cutting cycle later in the year.
At the recent January meeting of the Monetary Policy Committee, Reserve Bank Governor Lesetja Kganyago said: “In the near term, inflation appears well contained. However, the medium-term outlook is more uncertain than usual, with material risks from the external environment. Domestic factors such as administered prices are also problematic.”
It bears noting that the housing market has shown strong signs of a recovery in recent months, says Bradd Bendall, BetterBond’s National Head of Sales. ”Notwithstanding last year’s restrictive monetary policy, BetterBond reported a 6.6% year-on-year growth in home loan applications and an 8.1% increase in home loans granted.” In its latest Property Barometer, FNB is cautiously optimistic about the market outlook with its projection that house price inflation will climb from the current 0.9% to 1.7% this year, followed by a gradual acceleration to over 3% by 2026.
“The best way to navigate uncertainty is by focusing on aspects of your bond that can provide some measure of security or peace of mind,” advises Bendall. BetterBond suggests five ways in which your bond could provide some assurance over the next few months.
- Secure a more favourable interest rate
If you are buying a home this year, apply to more than one bank to improve your chance of securing a more favourable interest rate, says Bendall. “A bond originator will approach more than one bank on your behalf to secure the most favourable lending rate. Banks will grant concessions depending on a buyer’s risk profile.” Applying to more than one bank also improves the chances of bond approval. “When applying to one bank, Betterbond’s approval rate is around 53%. This improves to about 79% when applying to four or more banks. This percentage increases further if you get pre-approved through BetterBond,” he adds.
2. Opt for a fixed rate
As with any financial decision, opting for a fixed or variable rate depends on a buyer’s financial status and budgetary needs, explains Bendall. Unlike a variable interest rate, a fixed interest rate remains the same regardless of the Reserve Bank’s changes to the prime lending rate.
New buyers who are concerned about affordability when applying for a bond may consider a fixed interest rate rather than a variable rate given the concerns about inflation and muted economic growth. “The appeal of a fixed interest rate is the stability it offers,” says Bendall, “but the rate is usually much higher than a variable rate because of the risk it poses to the bank.” A fixed rate can also only be set for five years.
“Thereafter, you will need to renegotiate and the prime lending rate could be less favorable than before. However, affordability is always a consideration when buying a home, and setting a fixed rate may provide a buyer with much-needed predictability so that they can budget accordingly.” Bendall adds that the option for a fixed interest rate is only offered for an initial period after bond registration.
3. Pay your bond earlier in the month and save on interest
If you are a current homeowner, the earlier in the month you pay your bond the less interest you will accumulate over the loan period. You could also split your monthly bond installment – paying a portion on the last day of the month and the balance on the 15th – to save on costs. Although the full amount will be paid within the 30-day period, the interest which is calculated daily will be reduced.
4. Pay extra into your bond while you can
Current homeowners who pay more into their bonds now, while interest rates are in a downward cycle, could save on interest over the long term and significantly reduce their loan repayment period. By example, on a R2 million bond at a prime lending rate of 11%, an additional payment of R1 000 a month would save R500 835 in interest and reduce the 20-year loan period to just over 17 years. “The best time to pay extra on your bond is during the first 10 years as this is when the bulk of your payment goes towards the interest.”
5. Renegotiate your bond terms
Some banks may renegotiate their interest rates and extend the loan repayment term if the holder of the bond has an impeccable credit score and payment track record. “Bear in mind that while a longer bond repayment period could lower the monthly repayments, it could add interest to the overall bond amount,” says Bendall. “This option requires a formal request to the bank and is usually only granted in exceptional circumstances.”
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