A home loan interest rate is the way the bank charges you for the risk they take on when granting you a home loan. Your home loan interest rate determines how much you will repay the bank each month, over and above the price of the home you are purchasing.
Pay a little more to reap large rewards
To save money, your goal should be to obtain the lowest home loan interest rate possible from the bank. There are a number of ways you can achieve this. For example, you can reduce the total cost of borrowing money from the bank and shortening your repayment term by paying the bank more than the agreed home loan repayment amount each month.
Pay a depost and save
Another powerful way to reduce interest is to pay a deposit, as the more money you are able to pay upfront, the less the bank has to loan you. Paying a deposit is to your benefit as it lowers your monthly repayments while saving you on interest over the duration of your home loan.
Do you know how much you would like to pay to purchase your dream home? Try out this repayment calculator to see how paying a deposit can substanitally impact your monthly repayment. Calculate what you can afford with this affordability calculator.
Repo rate
You may have heard of are the repo rate and the prime lending rate. This is probably because the repo rate impacts the interest rate you will pay on your home loan.
The South African Reserve Bank (SARB) is South Africa’s central bank and its role is to protect the value our currency and help keep our economy stable by keeping inflation low by ammending the repo rate.
The repo rate is the interest rate commercial banks pay to borrow money from the South African Reserve Bank (SARB). When the repo rate rises it becomes more expensive for commercial banks to borrow money and impacts the prime lending rate. When the repo rate is lowered it becomes less expensive for banks to borrow money to lend to home buyers.
Prime lending rate
The prime lending rate is the minimum rate commercial banks charge you for your home loan. When the prime leanding rate alters as the result of a change to the repo rate, so too your home loan repayment amount will change.
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