With the number of interest rate reductions this year, a home loan or ‘bond’ is starting to look like a really attractive option if you need to access a large amount of cash, 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 home owner 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.
“In either case the good news is that a home owner doesn’t need to do very much except apply for the extended loan and complete relevant paperwork … Absa does the rest for you,” says Ncapai. But before you take these options seriously, you must be sure that you have a good credit rating, which you can check online at various credit bureaux.
Credit rating crucial
Absa, like all financial institutions considering loan applications of any nature, uses rating scores in the credit assessment process that is undertaken, to determine if the applicant qualifies for the loan amount being applied for.
“If you know that you have a good credit rating, how much of loan you are entitled to access is 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, comparing the sales price of similar properties in your area, from your council bill, 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 working through Absa internal channels such as a branch or Express Agent, or through the Absa digital platform under the drop-down 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.
“One the customer agrees, a contract is drawn up, and signed at an Absa branch, or in the case of a Further Advance, at appointed attorneys 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 as long as two months, with payout happening within 25 days of registration of the new bond.
In both cases requirements include a valid bar-coded identity documents of the applicant/s, latest payslip/s, and three months bank statements, regardless of whether you bank at Absa.
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 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 saving on interest payments.”
Ncapai also highlights that accessing equity in the existing property to purchase another has further benefits. “You will save on bond registration costs of the new property as you may not need to register any additional bonds on the existing property to access sufficient funds. In the event that you are required to register a Further Advance on the existing property, it will still be much cheaper than potentially having to register a bond on the new property for the full purchase price.”
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. “Obviously this means the shorter-term results in a slightly higher monthly repayment, but the interest saving by doing this is significant,” says Ncapai.