Resist the urge to overuse your mortgage facility

Home owners who have access bond facilities on their mortgage loans might often be tempted to borrow a little against what they have paid off each time they are cash-strapped – perhaps wanting to consolidate smaller debts or when they need an extra boost for a larger item they’d like to buy for their home.

But this is not advisable, says Michael Bauer, managing director of property company SAProperty.com.

“This is a strategy some people recommend, as interest rates on credit cards and short-term loans are often much higher than the bond interest rates, and for many, this is a preferred way of borrowing cash.

“Doing so might be a reprieve, but it is short-lived, as borrowing additional amounts will increase monthly bond repayments, and might push you to the point of financial stress or unaffordability.

“In addition, you put your home at risk if you can’t pay the mortgage instalment each month, which is not a sensible move, as this destabilises what is possibly the biggest investment you’ll ever make,” says Bauer.

Another point to note when considering borrowing from an access bond, is that there are additional costs involved in doing so. There will be additional fees for valuation and registration, plus legal costs, and these are usually added to the home loan account if applicants don’t have the cash to pay for these upfront. Effectively this is paid for over the life of the loan, with interest added.

“If, however, debt consolidation is absolutely essential, and there is enough available on the bond to draw one large lump sum to cover the total of all the smaller debts, you should take the maximum amount – but only do this once,” says Bauer.

“Then, whatever was being repaid to service those smaller debts, pay into the bond account, which then quickly reduces the capital balance of the loan and rebuilds home equity. Resist the temptation to pay just the minimum – put as much as possible into the bond each month, which will help pay the bond off faster and save on interest paid.”

It’s also important to ensure that all “extras” in the household budget have been paired back, such as store credit cards, gym contracts, extra mobile packages and online entertainment packages.

“Do ensure that you know what interest rate you’ll be paying on the new amount and what the full costs are before deciding to go this route. It would also make sense to ask a bond originator to help negotiate the best rate possible. Bear in mind that interest rates on mortgages are linked to the prime rate and can vary from bank to bank. Also remember that refinancing short-term with your mortgage may free up cash flow, but it will add a lot in interest charges over the 20 year lifespan of a bond,” says Bauer.

SAProperty.com can assist with home loan applications through its dedicated in-house bond originator. Call Michael Bauer on 083 255 4442 or email michael@saproperty.com.