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Personal loans are not the only solution to securing funding for housing alterations or high-ticket items like weddings, motor vehicles and school fees. Bonds, as well as the latent value in your home derived from capital appreciation since the property was acquired, offer a cheaper alternative.
Before deciding the financial goals, you need to access your financial position and plan accurately for managing the debt repayments particularly in the current economic climate where the banks have assumed a harder line in risk assessment.
In the fourth quarter of last year South African banks tightened their credit lending criteria that now place restrictions on accessing capital in home loan accounts. This is in line with the National Credit Act that governs consumers’ credit facility to prevent over-indebtedness.
However, that does not detract from the reality that the bond – whether it is an existing bond or the registration of a second bond over a property – remains one of the cheapest vehicles through which to borrow money.
The amendments have seen the banks freeze clients’ access to draw down additional cash from their home loans in a bid to manage their risk. This means particularly high-risk clients have to apply to access funds including repaid capital and equity that has been accumulated over the years.
The application includes an affordability assessment to gauge individual client’s ability to repay the loan after the funds have been withdrawn.
Having passed that hurdle and qualified to access the capital, the bond offers the opportunity for renovating your home, consolidating debt or paying off high-ticket items like motor vehicles, holidays, school fees or a wedding.
The benefit is that accessing the existing bond or securing a further loan over the property that takes advantage of appreciation since the initial purchase date provides the opportunity to repay debt at the prevailing prime rate. In some cases, Mortgage Plus may secure mortgages at a discount to prime, further reducing the costs of capital.
Essentially the bond has worked as a savings mechanism for additional capital that although does not earn interest, effectively saves future interest generated over the bond. By reducing the terms of payment (to say 15 years rather than 20), you have negated interest payments over a five-year period and the benefit of that saving is not taxable.
However, even the bond option comes with the opportunity to think out of the box. Essentially paying cash for an item – even large-ticket ones – is the best means for limiting debt traps and by using the bond as a savings account until the full purchase price has been achieved, you scoop a double bonus by avoiding debt and benefiting in the short-term by having additional capital in the bond to lower the interest payments.
Consolidating assets may be another alternative to personal loans. In brutally analysing assets around the house – two motor vehicles when one may be sufficient or leisure craft that have spent more time in the garage than on the water – the bulk of the required expenditure may be within reach without stress.
Mortgage Plus ranks among the country’s largest mortgage originators and, via a national sales and branch network, can offer free advice to home owners and buyers.
A relatively young business locally, bond origination is the process of finding mortgages for home owners that suit their specific needs. The key lies in giving the client a choice of banks and thus providing a hassle-free service without incurring additional costs.
Essentially, each bank has its own lending criteria and product range to different market segments – from first-time buyers to the private bank client with the multi-million-rand property. Also, Mortgage Plus sells home related finance products which add value such as life cover on a bond, home owners’ comprehensive insurance and bridging finance to cover the time gap between buying one property and selling another.
By choosing Mortgage Plus for a loan, you will get that continual service to make sure you are getting the best deal possible.
CONTACT US
Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.
Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za
www.mortgagepluscc.co.za
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