Access bond has limits

In offering their clients more control over their personal finances, about 10 years ago the banks introduced a "flexible home loan" product, a far cry from the traditional home loan that merely needed to be repaid at a fixed installment over a fixed period. Even though the product has been on the market for some time, a lot of focus has been placed on its advantages, while its limitations have received very little attention…

The product

It is a home loan in which you can deposit additional funds over and above your monthly installment. These additional funds are available to you should you require them in the future.

The advantage

As your interest is calculated daily and compounded monthly, you start saving interest on the deposit made from the day in which it was made. It’s a form of tax-free saving as you are saving on interest charged and not earning interest which is taxable income.

The additional funds deposited into your home loan are easily accessible and you don’t have to apply for them.

The limitations

  • In order to access these funds you will need to have a transactional account at the same bank that houses your home loan. In other words, if you don’t bank with them you will be required to open an additional account.
  • This product is not available to those requiring an affordable housing loan. In such cases only the traditional home loan applies.
  • Certain banks will not allow this product on vacant land loans.
  • Be careful where your bank allows you to withdraw up to the original loan amount granted. You may be in for a shock when you realise that suddenly your installments have increased drastically as you are repaying the full loan over the remaining period, not the period originally negotiated.
  • Non-residents or those without a permanent residency in South Africa may not qualify for a flexible home loan at certain banks.
  • When applying for a further loan your flexible facility will be temporary cancelled until the new loan has registered. If you have additional funds in your loan that you will require in the interim, best you withdraw them before applying for the further loan.
  • Furthermore, when you have requested the cancellation of the bond, because you have either sold the property or you wish to pay up the loan, your flexible facility will be cancelled as soon as the bank has received the cancellation instructions.
  • Certain banks will not allow a flexible facility when purchasing in a partnership, a trust or a company or should you wish to avail of a fixed rate option.
  • Should your account fall into arrears or you are under debt review, your facility will be cancelled with immediate effect.
  • On building loans, the facility will only kick-in when the building is complete and the bank makes final payment.

The terms and conditions of the flexible home loan differ from bank to bank and it's vital to familiarise yourself with the limitations of the bank you have selected.

The interest rate offered should not be the only deciding factor. You don’t want to be in a position where you don’t have access to the additional funds deposited into home loan when you need it most!

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