The recent rate cut provides a great opportunity for you to make a dent in your mortgage.

When the Monetary Policy Committee recently voted to cut interest rates by 25 basis points, many households – especially those with mortgages and car finance – would have heaved a sigh of relief.

The rate cut, which reduced the prime lending rate from 11.75% to 11.50%, will provide some respite from the relentlessly high interest rates over the last two years. On a mortgage of R1 million, the interest repayment will decrease by around R208 a month.

South Africans should also feel some relief due to fuel price cuts, which are the result of lower oil prices and a stronger rand.

The price of 95-octane petrol and diesel decreased by 114 cents per litre in October which means that a motorist will save around R57 on a 50-litre tank of fuel.

At the same time, inflation is starting to moderate. According to the BankservAfrica Take-home Pay Index, salary increases are now ahead of inflation. This should all have a positive impact on household budgets.

More importantly, the rate cut signals the start of a declining interest-rate cycle, and we should see further interest-rate cuts over the coming months. Most economists expect the prime interest rate to be between 100 to 150 basis points lower by this time next year.

Unfortunately, we shouldn’t expect to see interest rates get back down to the levels that we enjoyed between July 2020 and October 2021, when the prime rate hit a low of 7%. This was an emergency measure, and the prime interest rate is more likely to remain around 10.5% to 10.75% in the future.

However, South Africans can make the most of the upcoming interest-rate cuts to pay off debt.

“Households not facing financial strain can use this opportunity to accelerate their home loan repayments,” says Toni Anderson, head of Standard Bank Home Services.

Standard Bank expects three additional rate cuts of 25 basis points each – one in November and two in the first half of 2025. If these expected cuts reduce rates by a total of 100 basis points, homeowners could save R833 per month on a R1 million bond in the next year.

For example, with a R1 million home loan, maintaining the same repayment amount after 100 basis points interest rates cuts could save homeowners R398 237 in interest and reduce their loan term by four years.

Below are calculations provided by Standard Bank of potential savings in interest for homeowners in different property brackets if they keep their monthly repayments unchanged (note that the calculations below are illustrative and don’t factor any future interest-rate changes). In all cases, you would pay off your home loan four years earlier.

This article first appeared in City Press.