With the number of interest rate reductions this year, a home loan or ‘bond’ is starting to look like an attractive option for buyers and homeowners that want to access cash from their home loan, and fast. We’re not talking about selling your home but rather accessing some of the equity in your property.
There are two options presented by Absa: Re-Advance and Further Advance. In the former, a homeowner can access the difference between the current outstanding balance and the original loan granted amount. Further Advance is the difference between the current outstanding balance and the current value of the property.
Nondumiso Ncapai, Head of Product at Home Loans Absa, says that each option comes with specific benefits, and implications. “Re-Advance for example, requires no bond registration and has a quick turnaround time from application to payout. Further Advance does however require a new bond registration, which means additional costs, but herein lies the potential to tap into a much bigger pool of funds if the value of the property has increased.
“In either case the good news is that a homeowner doesn’t need to do very much except apply for the loan and complete relevant application. Absa does the rest for you,” says Ncapai. But before you consider these options, you must be sure that you have a good credit rating, which you can check online at various credit bureaux. You get one free credit bureau report a year.
Credit rating crucial
Absa, like all financial institutions considering loan applications of any nature, uses rating scores and affordability in the credit assessment process that is undertaken, to determine if the applicant qualifies for the loan amount being applied for. In addition, it’s important that you are able to afford the additional instalment you will pay for the added loan you have taken up.
“If you know that you have a good credit rating, how much of loan you would like to access is also dependent on your individual circumstances,” says Ncapai. “For a Re-Advance it is a simple calculation of the difference between what your original loan was, minus the outstanding balance. This is usually reflected in your Absa home loan statement.
“With a Further Advance you need to know the current value of your property, which can be undertaken by an agent, or a bank evaluator who will be appointed anyway to confirm the value once the process is in motion. The difference in the value today versus the original loan amount, is the qualifying loan that you are entitled to access.”
Process of application
Assuming you are ready to explore the equity in your home, the application process is relatively easy and you have the option of applying through the branch, your banker, contact centre, express agent, or through the Absa digital platform under the dropdown menu Further/Re-Advance. “A quote is provided to the applicant after the credit assessment and property evaluation has been concluded, which will clearly indicate the interest rate and term of loan, as well as the minimum monthly instalment amounts”.
“Once the customer agrees, a contract is drawn up, and signed and in the case of a Further Advance, concluded by an appointed attorney to whom the applicant must pay over any bond registration fees used to register the additional amount on the property at the deeds office.”
Timing and requirements
It takes just three days for Absa to provide an outcome from an application for a Re-Advance, and funds are made available within a week. A Further Advance however can take up to 25 days due to the process involved i.e. Valuation and Bond registration.
Use of the loan
The beauty of these types of loan structures is that once granted the loan can be used for anything. “Customers have the freedom to use the money as they please, be that for home improvements, university fees or a holiday,” confirms Ncapai.
“The loan is paid into the customer’s nominated transactional account or they may choose to have it credited to the home loan account after which it can be utilised as Flexi Reserve. This is a great option if you don’t want to use all the funds at once and translates into savings on interest payments. Discuss this with your bank.”
Absa’s differentiation
Absa is the only financial institution that allows its home loan applicants to structure a Re-Advance or Further Advance over a shorter period than the existing loan on a secondary account with their Multiplan product. “Obviously this means the shorter-term results in a slightly higher monthly repayment, but the interest saving by doing this is significant, in relation to taking up unsecured credit,” says Ncapai.