Do nothing about the interest rate cut and make R98 969.86

The Reserve bank cut interest rates by 0.5% per annum in an effort to boost the economy. The major banks implemented the cut from 19 November 2010.

This equates to a monthly saving of R32.40 per R100 000 owing on a homeloan over twenty years.

This may seem like a drop in the ocean, but it can make a real difference if ignore the reduction and keep paying the same as you were before.

Here is an example to illustrate the amazing effect of such a small commitment:

Homeloan                    R500 000
Term of loan                R20 years
Interest rate                 9.5% (before the rate cut)
Monthly repayment      R4660.66

Reduced interest rate   9.0%
Reduced repayment     R4498.63
Saving                         R162.03

If you keep paying the original repayment of R4660.66, you will settle your homeloan in 18 years and 2 months – that’s 22 months early.

Your saving? 22 months x R4498.63 = R98 969.86