'Resist the rate cut'

Johannesburg - Home-owners can save thousands of rands and significantly shorten the terms of their loans if they ignore the latest interest-rate cuts and pay as much as possible off on their home loans.

This is the response of Allister Long, managing director of Powerhouse Financial Solutions, to Thursday's one percentage point cut in the repo rate. This brings the prime lending rate down to11%. Since December last year interest rates have shed 4.5 percentage points.

Long says the home-owner with a R1m mortgage bond can shorten the term of his loan by almost four years, and save R321 000 if he ignores Thursday's interest-rate cut and continue to pay the higher monthly amount.

A home-owner with a R1m who has so far ignored all the interest-rate cuts and continued paying off the loan at the rate of 15.5%, will halve his term and save himself about R800 000, he calculates.

Thursday's cut amounts to a monthly saving of R689 a month on a R1m bond. If all interest-rate cuts since last December are taken into account, this home-owner now has R3 217 a month more in his pocket.

Alliance Group chief executive Rael Levitt says that home owners who are already in arrears with their monthly bond payments will unfortunately not experience relief from this latest decrease.

At this stage the lower interest rates are not giving the housing market the boost required to improve demand for accommodation.

Banks' strict lending criteria, where at least 50% of all loan applications turned down, are also a contributing factor.

Andrew Golding, chief executive of Pam Golding Estates, says the housing market is unlikely to improve within the next six months.

"The new reality is that prospective buyers will have to save to come up with the necessary deposit."

- Sake24.com

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