Real Estate Investor Magazine South Africa August/September 2019 | Page 8

PROPERTY ADVICE
Interest rate and Eviction
Benefits of the
interest rate cut
Q
A
MEYER DE WAAL,
Director of MDW incorporated
With the announcement of an interest rate cut, what does this
mean for property buyers and existing owners?
T
he Reserve Bank announced on 18 July 2019 to reduce the repo rate to 6.5% per annum.This is good news for all stakeholders
in the property industry. For the home owner and home buyer it means a reduction of the prime lending rate from 10.25 to
10%. The 0.25 % reduction appears nominal until you start to do the calculations over a 20 year home loan repayment term.
The biggest benefit of the reduction is that it creates a positive sentiment in the property industry. The past 18 months have
been slow for property sellers and estate agents. Many attributed this to “a wait and see” on the outcome of the 2019 National General
Elections. Homeowners are not advised to cash in now and pay less on their home loan each month. On a 20 year bond repayment
at an interest rate, a payment calculated on 10.25%, the monthly repayment is R 5 889.00 per month. On an interest rate of 10 % over
the same repayment period, the monthly repayment will be R5 790.00, a saving of R99.00 per month. Homeowners are advised to
think long term and can arrange with their bank to continue their old repayment which was applied before the interest rate cut. Even
consider to pay in an extra bit, perhaps the savings you will benefit from, as an example, from other credit payments, like your reduced
car credit instalments. It would be ideal to pay off one’s home loan faster. For example, on a home loan of R1 000 000, an extra monthly
payment of R166 per month, with a remaining repayment period of 15 years of the 20 year home loan will reduce the home loan
repayment with 6 months and save the property owner R38 771 in total.
Affordability is one of the key components to raise a home loan and the reduction in the interest rate will mean more buying
power for the home buyer. If you earn R20 000 per month, with an interest rate of 10.25% and calculated over a 20 year term, a
home buyer may qualify for a home loan of R611 219.00. If you earn an income of R35 000 per month on 10.25 %, this will raise a
home loan of R1 069 634.00 and 10 % will raise a loan of R 1 088 058.00, thus R18 424.00 more purchase power.
First time home buyers who earn between R3 501 – R22 000 must also remember that they may also qualify for a FLISP subsidy
from the Government to boost their purchaser power, says De Waal. To calculate a FLISP subsidy, click on the Flisp Subsidy Calculator
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AUGUST/SEPTEMBER 2019 SA Real Estate Investor Magazine