Your bond may hold the answer to easing cash flow in these uncertain times but think carefully before you make that decision.
“The current economic climate is challenging for all of us. Many have lost their jobs, have had salary reductions, or are unable to trade as they could in the past,” says Paul Stevens, CEO of Just Property. While Stevens advises against dipping into your bond to cover something that could be put off till the economy eases, leveraging a home loan can be a solution for those under severe strain. “But the decision needs to be carefully considered,” he warns.
Carl Coetzee, CEO of BetterBond offers an analysis of the various options available:
A payment "holiday" on your home loan repayments
If you need access to credit in the short term, this will help you avoid going into arrears and tarnishing your payment record. “Such relief will still attract interest and compound interest over the remaining term of the bond,” warns Coetzee. “It will also extend the repayment period of your home loan beyond the original term of the loan.”
If you want to go this route, he advises you to take advantage of low interest rates and pay extra into the bond as soon as possible to negate the deficit.
Taking money out of your Access Bond
This offers the cheapest access to funds, especially as we’re currently in a low interest rate cycle. It’s the best option if you need assistance creating liquidity during these unprecedented times, says Coetzee. Unlike the payment relief option, additional interest will only attach should you withdraw these funds, and there are no additional costs. Repayments are adjusted monthly in line with the funds utilized over the remaining term of the bond.
Getting a re-advance
Like an access bond, this allows you to withdraw from the funds that make up the difference between the original registered home loan amount and the outstanding balance.
In this case, says Coetzee, a formal application needs to be completed, giving all income and expenditure details; this will be subject to normal credit vetting. Generally, the interest rate originally negotiated remains in play, but no registration is required.
“To be most effective, the consumer should ensure that the new calculation is taken over the remaining period of the loan and does not extend it beyond that period or you will just attract more interest,” says Coetzee.
Taking out a further home loan
“Bear in mind that this option attracts additional costs,” Coetzee warns. “If included in the loan amount, these can attract interest over the term of the loan, depending on whether the original bond was approved before or after the NCA.”
Your home loan provider will charge an initiation cost of approximately R6 500, and registration with attorneys will attract additional costs. A further advance or further home loan needs to be registered in the Deeds Office and while this usually takes 3 weeks, there are significant delays currently being experienced due to the pandemic.
Coetzee suggests exploring the option of a much shorter term (eg 5 years) so as to attract less interest. “Where banks do offer this, the interest rate will be determined by your risk profile.”
Restructuring your current home loan
While the details differ from bank to bank, your risk profile will be taken into account for this option, too. There could be a renegotiation of the interest rate and an extension of the original term. A longer term could mean lower repayments but more interest, says Coetzee.
"Switching" your institution
Moving your bond from one institution to another attracts considerable costs. This should be seen as your last resort, says Coetzee.
There is an initiation fee of around R6 500 and cancellation fees of, on average, R4 000. There’s also an entirely new application and credit vetting process to go through.
“Before making this decision, weigh the possible reduction in interest over the period of the loan against the effect of all the costs incurred,” Coetzee advises.
“If there are costs attached to the choice you make, remember that adding these to the loan total can attract plenty of additional interest over the lifetime of the bond,” Stevens adds. “The first step is a frank discussion with your lending institution to make a careful assessment and to discuss terms before deciding on the best course.”
If, after careful consideration, you decide that leveraging your bond is not the option for you, then selling your property, especially if you have equity in it, may be the right thing to do. It’s a buyers market in much of the country, so if your property is priced right, it should sell. “Our agents are able to provide you with an objective, data-driven valuation of your property. Honest, no-strings-attached advice can provide a valuable tool when making these big decisions; place your trust in property experts, rather than hearsay from laypeople”, Stevens concludes.