Access bond vs Refinance

2013-12-08 14:00

Make sure you are aware of the different types of home loans, writes Neesa Moodley-Isaacs

Mtimkulu defaulted on his clothing accounts. He was also placed under judgment for outstanding debts.

However, once he paid up his clothing accounts and also received a consent to rescission of judgment, he thought that was the end of the matter.

Mtimkulu was surprised when his application for a readvance on his bond at First National Bank (FNB) was declined and he was told to wait six months before applying again.

“Please advise on this matter as I believe that I have a right to access funds from my bond,” he wrote to City Press.

First, it’s important to understand the difference between an access bond and a readvance on your home loan, says Monde Motha, channel manager at FNB home loans division. FNB refers to an access bond as a Flexi Bond facility.

This option allows you to access any additional or lump sum funds paid into your bond. This means any funds paid into the bond, over and above your monthly instalment.

The readvance option, on the other hand, refers to available funds that you can apply for.

This is usually the difference between your current outstanding bond amount and the initially registered bond amount.

For example, if you bought a home for R1?million in 2007 and the outstanding bond amount is now R600?000, you could apply for a readvance of the R400?000 difference.

However, you must bear in mind that a readvance, unlike an access-bond facility, is subject to credit approval.

In Mtimkulu’s case, he did not pass the credit check, but in six months’ time, if he reduces his expenses, he may then qualify for a readvance on his home loan.

Motha says an access-bond facility should ideally be requested upfront when you apply for a home loan. However, it can also be requested at any point after registration of the bond.

Absa allows you three different options when it comes to accessing money via your home loan.

The first is an access bond.

Absa’s head of retail banking, Arrie Rautenbach explains that the money can be paid monthly or as a one-off deposit.

For example, if the required monthly repayment on your home loan is R2?000 and you pay in R3?000 a month over a period of one year, you will have paid an extra R12?000 over the year.

This can be withdrawn either as a one-off amount of R12?000 or in portions, with a minimum withdrawal of R1?000.

Financial strain

“There are many clients applying for further advances on their current home loans to alleviate the burden of repaying other credit that is charged at higher interest rates.

“All expenses are taken into account when doing an assessment, as affordability needs to be in place.

“We do not approve further lending on the basis of clients consolidating debt,” Motha explains.

Rautenbach points out that despite low interest rates, many consumers remain financially strained against the background of rising living costs (food price inflation, transport inflation, rising property running costs), low savings and relatively high levels of debt.

“A large number of our customers normally use these [access-bond and readvance] facilities and the increased utilisation is normal during this time of the year as customers increase their expenditure,” he says.

Timothy Akinnusi, the head of sales and customer-value management at Nedbank, says clients most often access funds from their home loans in order to fund home-improvement projects, settle unscheduled medical bills and, historically, during January and February, pay school and university fees.

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