Saving in your bond under low interest rates – is it worthwhile?

At any point in the period of your home loan, it’s a wise move to try and inject some extra money into your bond payment. Paying as little as an extra R300 a month into a bond of R1 million with a 20-year term at the prime rate that was 9.75% at the start of the year, will reduce the repayment by 20 months.

The good news is that the repo rate has been cut with a total of 300 basis points in 2020 to give South Africans much-needed financial relief during the time of Covid-19. This has brought it down to just 3.5%, the lowest it’s been since 1973.

This, in turn, has brought down home loan interest from 9.75% at the beginning of the year to only 7% currently which means that on a bond of R1 million, there’s a saving of around R1700 on the monthly payment. According to Carl Coetzee, CEO of BetterBond, this translates into an astounding R416 000 saving over a 20-year bond term.

Simply put, it means that if you’re able to keep to the amount you were paying into your bond at the start of the year when the repo rate was higher, you will shorten your home loan period by 6.25 years.

This is a rare opportunity for South Africans to reduce debt without increasing monthly payments. Paying a little more on your mortgage will mean a big saving over the long-term. And while the extra cash in hand can be tempting to spend on daily expenses, it makes a whole lot more sense to put it into your bond.

So, the answer is YES, if you can afford to, it will absolutely be worthwhile to do so.