The rate cut will leave homeowners with some surplus cash and much-needed relief, given the economic constraints caused by Covid-19, says John Manyike, head of financial education at Old Mutual.
“But while the additional cash may come in handy, homeowners should consider keeping up their home loan repayments at pre-rate cut levels. Doing this could significantly reduce the total interest you pay and shorten the loan repayment term.”
Manyike’s message is simple – take a long-term view of the benefits of the rate cut to maximise its positive impact on your finances, especially if you can afford to pay a little bit more than you must.
Illustrating the benefits of paying extra on your home loan, he says a R1 million property at an interest rate of 7.75% will cost R1.97m over 20 years. The monthly instalment will be R8 209. But if the homeowner pays an extra R1 000 a month on the same property – R9 209 – it would cost R1 73m over 15.67 years. The total loan amount will be reduced by R241 817, Manyike says.