Extending your bond
A bond or home loan is often a necessity when buying a property and many consider the primary aim to be paying this loan off, but there are a number of alternatives that could come in handy.
Why keep your bond account open?
The thought of paying off a home loan and then cancelling this account may well seem appealing at first, but taking a step back to look at the bigger picture, a number of benefits of keeping this account open become clear.
Fundamentally, a home loan secured by a registered bond provides access to funds. This can be particularly useful should it be needed, whether for the purchase of an additional property, for renovations or alterations to an existing property, or for a number of other reasons.
As such, before cancelling a home loan, it is worth considering whether easy access to finance is likely to be useful.
Bond extension options
There are several options that would provide additional funds when needed, each of which has slightly different implications regarding process and costs. These options include:
- A re-advance of a bond which allows access to the difference between the original loan amount and the amount still outstanding on the bond. Because there is no change in the total loan amount, a re-advance would not need to be re-registered in the Deeds Office.
- Should a future access advance be approved, a loan for an amount greater than required will be registered and the remainder of the loan will then be accessible in the near future. Similar to the re-advance, this loan does not need to be re-registered with the Deeds Office, but there will be bond costs involved.
- A further building loan is available when the value of the property built is in the process of being increased by extending renovating or improving the property.
- In some cases, a bond can moved from one financial institution to another which offers a higher loan amount – this is termed switch bond future use. In order to complete this process, both cancellation and bond costs will be payable.
- A further bond is an additional bond that is registered over the existing property that one owns. This bond option would involve additional bond costs as this is a new loan that needs to be registered.
It is worth noting that all the above mentioned bond options require an application to made to the relevant financial institution, and are subject to a credit assessment and valuation of the property put up as collateral. In addition, there may be restructuring costs associated with these bond options, and these should be investigated through the relevant financial institution. The type products provided by the various financial institution may also differ substantially.
Written by Wessel de Kock
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