One decision can save South African homeowners over R650,000

Property experts urged homeowners to keep their bond repayments as they were before the series of repo rate cuts, since this strategy could save them hundreds of thousands in interest and shave years off their bond term.

The decision in September to keep South Africa’s repo rate unchanged at 7.00% marks a pause after a series of five cuts over the past year, and means the prime lending rate will stay at 10.50%.

These cuts have put disposable expenditure of more than R1,500 into the pockets of homeowners with variable-rate mortgages in the R2 million range.

For homeowners, the period of rapid relief may have taken a breather, but property experts stressed that a disciplined financial strategy could translate the recent gains into monumental long-term savings.

Since September 2024, the Monetary Policy Committee (MPC) has delivered a cumulative 125 basis points of cuts, slashing the repo rate from 8.25% to 7.00%.

For homeowners with a R2 million variable-rate bond, this has decreased their monthly instalment by more than R1,600.

Cobus Odendaal, CEO of Lew Geffen Sotheby’s International Realty in Craighall and Randburg, warned that this extra cash should not be seen as “mad money”.

“The instinct for many is to breathe a sigh of relief and absorb that R1,600 back into their monthly household budget for other expenses,” Odendaal said.

“But that would be a significant missed opportunity. Unfortunately, the financially astute move is to pretend the rate cuts never happened.”

Odendaal urged homeowners to continue paying their original instalment, which was calculated at 2024’s prime rate of 11.75%.

“If you set a household budget last year and made it through the month without that extra cash, then stick to it,” he said.

“By continuing to pay your old, higher instalment – around R21,675 on a R2 million bond – you are effectively paying a massive amount off your capital balance every single month.”

The numbers are staggering. On a standard 20-year loan, this discipline would allow a homeowner to own their house free and clear approximately four years sooner.

It would also slash off more than R650,000 from the total interest paid over the life of the bond, Odendaal explained.

“For even the most financially untrained among us, those numbers are a no-brainer. It’s the easiest R650,000 you will ever save.”

The message is clear for these homeowners

The strategy of paying extra is a great way to save on a bond payment. However, it is only useful to homeowners who are on a variable interest rate bond, which has been the favourable choice during this cutting cycle.

“It’s crucial for buyers to understand the difference between the two main bond types,” Odendaal explained.

The variable interest rate fluctuates directly with the South African Reserve Bank’s repo rate. When the repo rate is cut or hiked, a bank’s prime lending rate follows.

Therefore, consumers’ monthly bond repayment changes accordingly. This means they immediately benefit from rate cuts but are also exposed to future hikes.

In contrast, fixed interest rates are locked in for an agreed-upon period, usually 1 to 5 years, regardless of whether the national repo rate goes up or down.

This provides certainty for budgeting but means the consumer will not benefit from any rate cuts during the fixed term.

“When rates are falling significantly, as they have been, variable-rate loans typically offer much better value as you automatically benefit from each cut,” Odendaal noted.

“Given the fact that the MPC has put the brakes on another cut, and given the uncertainty over South Africa’s export market with the new US trade tariffs, paying what was a stretch last year will offer more of a buffer if the rates rise again.”

Odendaal said that, despite the repo rate remaining the same this month, the property market has been rebounding. Investors are now realising the safety and stability of real estate as measured against other, less secure investments.

“For existing homeowners with variable bonds, the message is clear – use this pause as a chance to get ahead, and for those entering the market, understanding your bond type is the first step to long-term financial health.”