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- The Reserve Bank has indicated that there are no further interest rate cuts, and its models predict two increases in the latter half of 2021.
- For mortgage holders, now might be a good time to consider rate setting.
- But the terms may not be as good as you might expect.
- And there is the “risk” of another rate cut before the end of the year.
- For more articles, visit www.BusinessInsider.co.za.
The interest rate party may be over, SA’s Monetary Policy Committee (MPC) said Wednesday.
He kept the buyback rate unchanged at 3.5%, and Governor Lesetja Kganyago said that the Reserve Bank’s models do not foresee further cuts anytime soon. Instead, there are two rate hikes on the horizon, in the third and fourth quarters of 2021.
The economy suffered more than expected in the second quarter, and the bank now expects GDP to contract 8.2% this year, from its previous forecast of 7.3%. But the MPC expects inflation to stay under control for at least 2021 and 2022.
It also indicated that it cannot do much more to help prop up the economy.
“Monetary policy … alone cannot improve the potential growth rate of the economy or reduce fiscal risks,” says Kganyago. “These must be addressed through the implementation of prudent macroeconomic policies and structural reforms that reduce overall costs and increase investment opportunities, potential growth and job creation.”
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South African interest rates have already fallen by 300 basis points since the beginning of the year, far more than the average 100 basis point cut in other emerging markets.
The cuts this year have already meant a sharp drop in bond payments. On a new R2 million mortgage at the prime rate, you will now pay around R3,800 a month less than at the beginning of the year.
Prime rate since 2008. Source: Reserve Bank of South Africa
Since rates seem to be heading upward, you may be tempted to rate your home loan.
This is what you should be aware of.
You will probably need to rate your home loan higher than you would expect
You must first confirm with your bank what fixed rate it will offer and for how long, says Simon Brown, analyst and founder of the Just One Lap financial education platform.
The fixed rate they will offer is usually higher than the current floating rate, he adds.
“The fixed rates offered by the bank vary on a regular basis and depend on a number of factors, including the bank’s perspective on the future movement of interest rates. Therefore, clients cannot choose which rate to fix, but they can ask to quote with the rates available at any given time, and select whether to set at the rate offered at that time or not, “says First National Bank’s director of housing finance, Mfundo Mabaso.
You won’t be able to fix it for the rest of the term of your mortgage loan
Banks will generally set a home loan rate for up to five years.
The longer you want to set the rate, the higher the rate offered.
There is a “risk” of at least one more rate cut
The great benefit of a fixed rate mortgage is the certainty it provides, as this type of payment is typically the highest monthly cost in most households, “according to Thozama Mochadibane, head of customer satisfaction at Nedbank Home Loans,
However, according to Mochadibane, the downside is that “locking yourself into a fixed rate for, say, three years, is that there is a chance that interest rates will stay low or fall further during that time, leaving you paying more than you pay. that I would pay otherwise I would have “.
While Kganyago indicated that no further rate cuts are planned, two of the five members of the monetary policy committee still voted for a 25 basis point rate cut.
It was a close decision, says FNB chief economist Mamello Matikinca-Ngwenya. She believes there is still room for another 25 basis points of cuts before the end of the year.
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