Refinancing your home loan? Keep an eye on the prime interest rate

Refinancing your home loan can be a smart way to reduce your monthly repayments or access extra cash for big expenses. But before you take the next step, there’s one number you need to watch closely: the prime interest rate.

What is the prime interest rate?

The prime interest rate is the benchmark rate that commercial banks use when lending money to customers. It’s influenced by the South African Reserve Bank’s repo rate. This is the rate at which the central bank lends to commercial banks. When the repo rate goes up or down, the prime rate usually follows.

The prime interest rate affects how much interest you pay on your bond. Most home loans in South Africa are linked to this rate. This means your repayments go up when the rate increases, and drop when the rate goes down.

Why it matters when you refinance

When you refinance, you’re essentially applying for a new home loan – either with your current bank or a different one. This could give you a better interest rate, more manageable monthly payments or access to additional funds.

However, it’s important to understand that refinancing doesn’t always result in a better interest rate. If your loan-to-value (LTV) ratio has increased (because your property’s value has dropped or your equity has shrunk), or if your risk profile has changed, the new interest rate offered could be higher, not lower.

Also, it’s important to note that bond originators like BetterBond typically only get involved when there is a further advance. For example, when you're applying for additional funds that require a new bond to be registered at the deeds office. If you're renegotiating your rate without registering a new bond, the process won’t go through a bond originator.

Different refinancing scenarios and what they mean

The process – and whether BetterBond can help – depends on the status of your current bond:

Property paid up and bond cancelled
If you’ve paid off your property and the bond has been officially cancelled at the deeds office, we can raise a brand-new bond against the unbonded property. After a new credit assessment, we can apply to and negotiate with multiple banks for the best interest rate.
Property paid up but bond still open
If your bond is paid up but not cancelled, the bank treats this as a “readvance” – meaning they’ll only allow you to access equity up to the original registered amount. This process can’t go through multiple banks unless you switch your bond – and switches don’t go through origination. Just remember that if you don’t have a flexi facility, the banks will require another credit assessment.
Further advance
This is when you apply for a second bond on a property where a bond already exists. It involves a new registration at the deeds office, but only through the bank that currently holds your bond.
Readvance
A readvance is when your bank simply increases your access to equity up to the original registered bond amount. The bank does its own affordability assessment. BetterBond can't do this for you.

Understanding which scenario applies to you will determine whether you can apply at multiple banks, stick with your current bank or whether the process can go through a bond originator like BetterBond.

Timing is key

Let’s say you took out a bond at prime plus 1%. If the prime rate was 9% at the time, your interest rate would have been 10%. If today’s prime rate is 10.50%, and you get prime -0.25% to refinance, your new rate would still be higher at 10.25%.

That’s why it’s important to look at both the prime rate and the margin (the plus or minus percentage) a lender is offering you. A lower margin isn’t always better if the prime rate itself is significantly higher than when you first got your bond.

What to consider before refinancing

Current prime interest rate: Check where the rate stands and what economists expect in the coming months. If it looks like rates will fall, it might make sense to wait.
Remaining bond term: If you're nearing the end of your loan term, the savings from refinancing may not justify the costs involved.
Bond registration and legal costs: These once-off fees can be substantial. Be sure to factor them in.
Access to equity: If your property has appreciated, refinancing may allow you to access funds. However, this also comes with added debt and costs.
Better offer from a different bank: If you’re applying for a further advance that allows for multiple bank submissions, BetterBond can secure offers from multiple banks and ensure you get competitive terms.

How BetterBond can help

So, if your refinancing includes a further advance that requires a new bond registration, BetterBond can assist by submitting your application to multiple banks – including your own. We’ll help you find the best possible interest rate and guide you through the new bond registration process. We work with all the leading banks, so you can compare offers based on the current prime interest rate and your unique financial profile. This will give you the confidence to make the smartest move.

The prime interest rate plays a big role in whether refinancing will save you money or not. Make sure you understand how it works. Know which refinancing option applies to you and get the right advice for your situation. With the right timing and support, refinancing can still be a powerful tool – but it’s not a one-size-fits-all solution.

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