Understanding prime rate versus home loan interest rate

If you’re applying for a home loan, you’ve probably come across the terms prime rate and home loan interest rate. While there is a close link, they’re not the same – and understanding the difference can help you make smarter financial decisions when buying a home.

Let’s break it down in simple terms.

What is the prime rate?

The prime lending rate – often just called the prime rate – is the benchmark interest rate set by commercial banks in South Africa. It’s influenced by the repo rate, which is set by the South African Reserve Bank (SARB).

The repo rate is the interest rate at which the SARB lends money to commercial banks. When the repo rate goes up or down, the prime rate usually follows. Banks add a margin to the repo rate to set the prime rate, which is the starting point for most lending rates, including home loans.

As of mid-2025, South Africa’s prime rate is around 11.75%, but it can change depending on economic conditions, inflation, and decisions made by the Reserve Bank.

What is a home loan interest rate?

Your home loan interest rate is the rate your bank or lender charges you to borrow money to buy a home. This rate is usually based on the prime rate, but it’s not necessarily the same. Banks will adjust your interest rate based on several personal factors. You’ll often see your home loan rate quoted as “prime plus” or “prime minus” a certain percentage. For example:

Why do home loan interest rates differ?

While the prime rate is the same across the banking industry, your individual home loan interest rate depends on your financial profile. Lenders consider:

A bond originator like BetterBond can help you compare personalised offers from multiple banks, which can save you thousands over the life of your home loan.

Fixed versus variable interest rates

Most home loans in South Africa have a variable interest rate. This means your monthly repayments can go up or down depending on movements in the prime rate.

Some banks offer a fixed rate for a set period (usually 12 to 24 months). This can give you peace of mind knowing your repayments won’t change. However, fixed rates are generally higher than variable ones. Fixed rates are also not available to everyone and may come with conditions.

Why this matters when you’re buying a home

Even a small difference in your interest rate can make a big impact on your total loan cost. For example, on a R1 million home loan over 20 years:

That’s why it’s worth shopping around for the best possible rate.

Final thoughts

In short, the prime rate is the base rate set by banks. On the other hand, your home loan interest rate is tailored to your profile and can be above or below the prime rate. Understanding the difference helps you make better choices, compare offers more effectively, and plan your budget with more confidence.

Whether you’re a first-time buyer or looking to upgrade, working with a bond originator like BetterBond can make it easier to navigate these terms and secure the best home loan interest rate for your needs.