Unlocking cheap credit from your home

What’s more – it can give you access to cheap credit that can help you put up a deposit on another property or finance renovations on your current home.

Here Carl Coetzee, CEO of BetterBond, offers advice on tips on how you can make the most of your access bond.

What is an access bond and what are the advantages of it?

Carl Coetzee (CC): It is a savings mechanism to put access cash into and have access to at any time that you require without having to give notice.

Depositing surplus funds into an access bond reduces the overall interest charged as interest is capitalised monthly on the outstanding balance of your bond.

Having an access bond available to you is convenient and you only pay interest on the amount accessed. If you do not use the funds, it can significantly reduce the overall interest capitalised to your bond and you can pay off the bond quicker.

What are the disadvantages of an access bond?

CC: One needs to be disciplined as it is easy access to available cash. If tied up in an investment there is usually a notice period or a fixed term that you need to invest for. It is very easy to have access to these funds and can be as simple as a transfer to your transactional account which can be extremely tempting.

Also, you need to ensure that you instruct your financial institution to adjust repayments over the remaining period of your mortgage bond or you could end up paying more interest if extended to the original term.

How often can one access the money in an access bond?

CC: There is no stipulated number of times that you can access it.  Your funds are readily available and can be withdrawn to the original loan granted amount.  Some banks do hold back one month’s repayment, so you need to check that with your financial institution.

Do you have to pay back a certain amount before you can dip in again?

CC: You do not have to pay back before you access it again. You need to ensure that your bank has approved the access facility to the loan amount granted of your bond.  Should you have registered a higher bond for future use, you will need to obtain approval from your bank for access and this will be assessed based on affordability and loan-to-value.

Is an access bond considered ‘cheap credit’?

CC: Yes. Accessing funds from your access bond is “cheap credit” and one should consider using any available funds to settle existing debt which is charged at a considerably higher interest rate.

Is it a good idea to pay more into my bond?

CC: Every rand paid into your bond reduces the outstanding balance, meaning you pay less interest over time.

The South African Reserve Bank forecasts that interest rates will remain in single digits for several months yet. If you have the financial means, instead of paying less because of the lower interest rate, try to keep paying what you were before interest rates dropped to 7%. This will significantly reduce the amount of interest owing and shorten the length of your bond repayment.

As the following example shows, paying just R1 000 extra a month on a R1.3 million bond, at the current prime lending rate of 7%, could reduce the duration of a loan by almost four years.