Why right now is the time to purchase property in South Africa.

The interest rate on a home loan will vary depending on what the bank is willing to offer, and how much of a risk they consider you to be. Another significant factor affecting interest rates will be the repo rate, which is determined by the South African Reserve Bank. The repo rate refers to the rate at which the SARB will lend to commercial banks. The repo rate determines the prime lending rate, which is the repo rate plus what the banks add on in order to make a profit.

What is the current prime lending rate?

From May 2022, the prime lending rate in South Africa is 8.25%. It has increased by 0.25% in November 2021, and by another 0.25% in January 2022.

This increase follows a succession of interest rate cuts in 2020, which brought the interest rate to the lowest it had been in decades.

These cuts were intended to keep the property market going during the Covid lockdown period. November and January increases signals that the South African Reserve Bank is attempting to adjust for rising inflation. More rate increases are predicted for 2022.

What does this mean for home loans?

Before interest rate hikes, a R1 000 000 home loan, with a term of 20 years and a R100 000 deposit, would have cost you R1 674 646, with monthly repayments of R6 978.

Following interest rate hikes, the same home loan would cost R1 740 081 (difference of R65 435), with monthly repayments of R7 250.

Other factors that affect interest rates

The prime interest rate and your financial situation will affect the interest rate that the bank charges on your home loan.

Credit record

A most significant factor, credit record, which is affected by your level of debt, and how timeously you pay your bills. Anything above 670 is considered an excellent credit score and is likely to earn you lower interest rates.

Deposit

Your deposit will affect your interest rates. The higher the deposit, the less risk to the bank, therefore, lower monthly repayments and interest rates.

Sourced by Oobahomeloans