The Long Term Impact of a Rate Increase

Those who take on debt to purchase a home are perhaps the most impacted by repo rate increases.

Why?

Well, to start with it is good to know that most people who take on a bond and pay it back over 25 or 30 years end up paying back three times the bond amount.

If you get a R500 000 bond you might pay back around +- R1.5 million

If you get a R1 500 000 bond then you will likely pay back R4.5 million.

That can surprise many people. Still, this is the way interest works. Each month a very large portion of the bond repayment is allocated to the interest portion of the loan and new interest (and fees) are added.

So, paying off a bond is a slow and steady game of 3 steps forward and 2 steps back. You pay the debt down and the bank adds in more fees and interest pushing the balance back up.

‘people who took a bond at 7% may now find themselves paying it back at 9.75%’

In recent months, .people who took a bond at 7% may now find themselves paying it back at 9.75% If the rate stays so high that will ultimately mean as much as an EXTRA R1 046 520 in interest over the next 3 decades.