Thursday

How to get the most out of your access bond



JOHANNESBURG – Access bonds are becoming increasingly popular as a means to pay off your home loan due to its money management facility and saving component.

Home Loans South Africa (HLSA) explains that any amount you pay into your home loan, over and above the agreed instalment, will result in you paying off your home loan faster, enabling you to save a huge amount in interest payments.

All banks offer access bonds and while they might use different names, the facility is the same. If you did not ask for this facility when you first took out your bond, you can apply for it. The bank will then do a risk assessment as required by law to ensure you are not over-indebted.

In the case of Standard Bank: “The outstanding balance of your home loan is reduced when you pay excess funds into your AccessBond account - this means that you pay less interest on your home loan. Because interest is calculated on a daily basis, the benefit is effective from the day on which you deposit the funds.”

Other banks may calculate the interest on a monthly basis. Here it is important to find out exactly when your financial institution calculates interest so that you can ensure that your debit order comes off a day or two before. This will also result in some saving. It may seem insignificant on a month-to-month basis, but it adds up. To try and establish by how much, experiment with the several bond calculators available on the internet to calculate your options.

Another way of saving money is to deposit your salary into your bond account and transfer sufficient funds into your current account to cover all your deductions like debit orders. You must first get electronic access by linking your current or savings account to your home loan.

HLSA says any extra funds paid are not locked into the bond and can be withdrawn whenever you need it. There is also no restriction on the amount you can pay into your home loan account. However, some banks do limit the amount you can draw at any given time.

Caution

Absa property analyst, Jacques du Toit, does sound a word of caution against using your long-term bond to finance goods that should be paid off over the short-term, like a car. Vehicle finance is usually granted over a five-year period. Paying it back over the long-term will pile on the interest.

Standard Bank explains that if you have sufficient equity in your home loan for a new car, the best option is to draw the money from your home loan. This will save you around 4% in interest. It will also cut out having to apply for credit with another financial institution.

However, the bank says a car loan should be paid off over a maximum period of five years: “…calculate what you would have paid on car finance and pay that amount into your bond every month…if you pay off your car for 20 years, the car will be long gone and you will still be paying, plus you’ll be paying for the next car as well.” Source - Moneyweb