Interest rate remains unchanged

As economists expected, it was announced today at the first Monetary Policy Committee meeting of 2015 that the interest rate would remain unchanged. Although former Treasury Director General and now Reserve Bank Governor, Lesetja Kganyago, had said last year that the bank was in a rate hiking cycle, the falling fuel prices and easing of food prices had served to improve the inflation outlook. The repo rate will remain at 5.75%, with the prime rate staying at 9.25%.
Adrian Goslett, CEO of RE/MAX of Southern Africa, says that with the price of crude oil dropping as much as it has, inflation has remained well within the target range, alleviating the need to hike the interest rates. He notes that the interest rate remaining at its current level and fuel prices declining will ease financially burdened homeowners to some degree and allow them to pay down debt or pay additional money into their bond accounts.
According to Goslett, one of the best investments that homeowners can make is by paying their home loan off faster to reduce the amount of interest they pay over the term of the loan. “Although many homeowners may think that it is an extremely difficult task to pay off their home faster, especially with a very tight budget, a few simple financial adjustments can make a large impact,” says Goslett. “Homeowners will be able to fast-track their path to financial freedom by proactively approaching the situation with the right strategy.”
He notes that homeowners can reduce the term of their home loan by adding an extra amount to their monthly instalments each month. An increase of just R500 on a bond of R1 million at an interest rate of 9.25% can save the homeowner R185 719.91 in interest and will cut the term of the loan to 17 years 4 months. If the homeowner pays an extra R1 000 on a bond of R1 million at prime, they will save R316 703.87 and will reduce to term of the loan to 15 years 5 months.
If fuel prices continue to drop and inflation remains low, we could see the interest rate drop at some stage during 2015, despite the warning last year that rates would likely increase. If this happens it will give homeowners a further opportunity to reduce the term of their loan by simply keeping their repayments the same. Goslett says that banks will normally automatically adjust home loan repayments that are linked to the interest rate, however if the homeowner opts to keep their monthly instalments constant, they will be paying extra money into their bond account, without affecting their budget.
He concludes by saying that by cutting years off their bond, homeowners can save large sums of money and thereby ensure that they are financially secure in the future.

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