Feeling the urge to splurge after this week`s cut in interest rates? Think again - it would be much smarter to keep paying interest on your bond at the old rate, saving tens, or maybe hundreds, of thousands of rands and paying your home loan off much sooner.
At 18 percent the base interest rate on home loans is only now back to the level it was in March last year before the rate peaked at 24 percent in September.
If you have a R200 000 bond over 20 years and you are paying the base rate of 18 percent interest, you will have R150 more in your pocket each month after the latest interest rate cut. You are paying almost R950 a month less than you were in September last year when interest rates were at their highest.
But instead of spending the money, you would be wise to maintain your monthly home loan repayments at the old level.
In fact if you had maintained the repayment on your R200 000 bond at R4 033 a month - what you were paying when interest rates peaked at 24 percent - you would save a whopping R372 000 in interest over the term of your loan. What is more, you would be able to repay your loan in 7,7 years.
Not many home owners could afford to keep home loan repayments at those punitive levels. But even maintaining repayments at the level they were at before the latest cut would be well worth your while.
For instance, maintaining the monthly repayment on a R200 000 loan over 20 years at R3 241 (19 percent) instead of lowering it to R3 087 (18 percent), you could save R175 000 in interest and pay off your loan in 14,8 years.
And if you maintain your repayment level through the next cuts as well, you will be sitting pretty in a few years time.
Economists mostly expect interest rates to drop a few more times before starting to rise again sometime next year.
Many are predicting that the home loan rate will fall to 16 percent by the end of the year and some, like George Kershoff at the Stellenbosch Bureau for Economic Research, see rates dropping to 14 percent next year.
After that, he says, interest rates are likely to start climbing again, but not to last year's levels.
BOE's economic team sees rates dropping at least to 15 percent and possibly even to 12 percent over the next year.
Kershoff says a factor which points towards an easing of interest rates by the monetary authorities is that inflation is coming down and there is a strong possibility the government and the Reserve Bank will introduce an inflation targeting policy. Lower inflation means the monetary authorities are under less pressure to keep interest rates high to control inflation.
Also, he says, the new governor of the Reserve Bank, Tito Mboweni, may be more inclined to lower interest rates to stimulate economic growth and job creation than his predecessor.
But much depends on how much capital keeps flowing into the country. If foreign capital inflows slow, the authorities may reverse the easier interest rates trend.
This could happen if there is a new emerging markets crisis, for instance, or if a sharp downturn on United States stock markets sends investors running for safe havens in places other than South Africa.
If interest rates are to come down further, is there any point in choosing one of the fixed interest rate or "step" options on offer?
It depends on how much risk you want to take on, says Kershoff.
If you think your budget can take it if things go wrong and interest rates start climbing sooner than expected, it might be worth your while to take a chance.
But if you were burned last year when interest rates soared just as everyone was predicting they would fall, you might consider a fixed or step option.
Borrowers who chose fixed rates before last year's interest rate hike have done well, says Charles Chemel of Standard Bank.
If you'd picked a fixed rate option in April last year, for instance, you could have paid a rate of 16,5 percent for 18 months, while market rates went as high as 24 percent.
On the other hand, if you'd picked a fixed rate at the top of the interest rate cycle in September, you could still be paying 24 percent.
If you don't opt for a fixed rate, remember you should negotiate the best deal you can with the bank.