Huge move by Reserve Bank – interest rates dropped by another 1.00%

In an unprecedented move, the SA Reserve Bank brought the scheduled May Monetary Policy Committee meeting forward and voted to reduce interest rates by a further 1.00%. This reduction brings the prime lending rate to 7.75%, down by a cumulative 2.25% from the 10.00% prime rate at the start of 2020.

What this means for you

A reduced interest rate on your liabilities presents you with a range of options. While we encourage you to speak to your advisor before making any decisions, broadly speaking the impact of this reduction is as follows:

  1. A lower interest rate means having to pay less each month on your loan repayments.
    • This latest drop will reduce a 20-year home loan repayment by a further R628 per month per R1 million (your total monthly reduction since January comes to R1 441 per month).
    • It will also save you a further R240 per month on a R500 000 vehicle repayment, assuming a 5-year finance term (almost R550 per month less than what you were paying before January).
  2. Cumulating your savings on your various repayments every month means immediate savings on your monthly expenses. But it also means you have the option to pay more towards your repayments now, which will result in you paying off your debts sooner and saving future interest. While this may be a challenge it is worthwhile considering, as it will go a long way towards strengthening your financial position. Locking-in your repayment and paying the same amount that you were paying before the interest rate cut can reduce the term of your loan by up to five and a half years.
  3. The relief of lower rates gives you the opportunity to interrogate your monthly budget and expenses. Consider necessities versus luxuries and essential purchases versus non-essential purchases, and then align your spending priorities accordingly.

Other options available  

As your advisors, we are sensitive to your recurring expenditure and how much goes towards your portfolio of financial and insurance products. While it is important to maintain as much as you can during this time, we know many people are under pressure and are being forced to make difficult decisions regarding their finances and where they spend their money.

To help, below is a summary of options from the various medical aid, life and short-term insurance providers. Before embarking on any of these avenues, please talk to your advisor about the most suitable solution for you and your specific situation.

Premium Relief Summary:

Life Insurance – Premium Relief Options
Discovery Liberty Momentum FMI PPS
Suspend Cover – no premiums payable Yes Yes Yes Yes Yes
Duration of Suspension 3 months, no cover 6 months, no cover. Cover can be reinstated during the 6 month period 3 months, no cover (1 April – 30 June)
Free ex-gratia cover of 20% of current sum assured, maximum R3,000,000
Option of either 3 months or 6 months 2 months, cover remains in force.
Automatic Reinstatement of Benefits Yes, no underwriting Declaration of Health required Yes, no underwriting Yes, no underwriting, but will need to pay back at least one premium

Further reinstatement Option included on all policies: Clients can reduce cover to the minimum allowed, and reinstate cover at next policy anniversary, free of underwriting.

Premium Relief – Full Cover Yes – clients with positive Payback benefits can use this to pay life premiums (Early Access fee of 2% pm applies) No No No No, but members with up to 2 months’ premiums in arrears will still enjoy cover.
After 2 months, members may use their profit-share account to fund premiums.

Medical Aid – Premium Relief Options
Discovery Profmed Momentum
Premium Relief – Full Cover Yes – clients with positive MSA Balances (i.e. positive MSA carried over from previous years) can use this to pay premiums Medical Aid can be suspended for up to 90 days, and will not be cancelled. Unclear how members will have their benefits reinstated… Yes – clients with a Healthsaver fund available can use this to pay premiums

Short-Term Insurance  – Premium Relief Options
Domestic Insurance
Discovery Insure If a client drives less than 500km in April they will receive 25% Discount on Motor Premium in May
If a client drives more than 500km in April, they will receive 15% discount on motor Premium in May
Old Mutual Insure
  1. Dr and Nurses who are working directly with COVID 19 can apply on individual basis for 3 month deferment of premiums
  2.  Leniency on a case-by-case basis will be given for missed premiums, request for delayed premiums, and increasing excesses or lowering cover amount. OMI reserves the right to allow premium to be deferred or not,  on a case by case basis
Momentum
  1. Leniency on missed premiums to be looked at depending on clients profile and risk
  2. Lowering cover and increasing excess  cover, can also be done
  3. If a client’s 4 year “ no claim”  pay back falls within the period April to June, clients can use this payback cash to fund premiums
Santam Clients that already have had premium-payment problems will be contacted directly by Santam. No other relief has been offered for up-to-date clients.
Miway Miway has implemented a 10% discount on premiums from April to June

Short-Term Insurance  – Premium Relief Options
Commerical Insurance
Discovery A) On a case by case basis SME that are “genuinely “ affected by lockdown can apply for 2 month deferment on premiums by emailing dbiretentions@discovery.co.za
B) All renewals that are due in May or June will not take place  and risk and premium rate will remain the same
Old Mutual Insure OMI is offering SME that qualify loans to help them not only pay their premiums but also for operational cash flow. All request for these loans must be done directly to OMI using the following email
COVID19SMEfund@ominsure.co.za.