If you are applying for a home loan to buy a new home, you should ask your bank or mortgage originator about access bond facilities.
After living in a home for several years, you will almost certainly find you need to improve or extend your existing space. If you have been paying your bond instalments for five years or more, you should have paid off some of the capital. You should have paid off a substantial amount if have been paying more than the minimum amount due each month.
With an access bond, this amount will again be available to you, so you won’t have to reapply to the bank for a second loan.
WATCH : Mortgage bonds and how consumers can save money
Apart from the additional documentation required, the problem with applying for a second bond is that the bank will usually charge a far higher rate of interest - around one to 2.5 percent above the initial rate granted. They usually also insist that you find the necessary funds to cover the shortfall between the approved second bond and the total monthly amount required.
This can bury you in debt for several years, so it’s best to avoid this situation by making use of the access facility attached to the first bond. However, this must be part of the deal when the loan was granted.
Upgrades
The reasons for home extensions and upgrades vary - from needing to add additional bedrooms if your family is growing to building a granny flat or a home office. Whatever your reason for improvements, you need to be sure the initial capital outlay will add to the home’s overall value.
You also need to ensure that you will not be overcapitalising on your property. For instance, if you live in a middle-income suburb, turning your property into a luxurious mansion doesn’t make financial sense. You almost certainly won’t be able to recoup your capital when you decide to sell.
Estate agents with experience in your neighbourhood will be able to advise you about this.
Higher bond amount
Some home buyers apply for higher home loan amounts than they initially need to cover the property’s purchase price. They pay the higher instalments each month but only draw small quantities until they are ready to renovate. This is a workable option, provided you qualify for the higher loan amount.
Another option is to pay one to two percent more than the stipulated monthly instalments, which increases the amount available in the access facility.
Next time you think about future home improvements and extensions, let access bonds be your first consideration.
Writer : Sarah-Jane Meyer