If your home loan is an access bond and you have been withdrawing repaid capital – up to the amount of the initial loan – it may come as news to you that you might no longer be allowed to do this.
To access repaid capital, you may now have to apply for it (a re-advance), and your application will be subject to an assessment to determine whether or not you can afford the new repayments. This means that, unless you apply for a re-advance, your bank will allow you to access only what you have paid over and above your required monthly instalments.
The banks refer to anything in excess of these repayments as “prepaid” funds.
Allowing you to access “prepaid” funds is risk-free, but giving you unfettered access to “repaid” funds might not be safe for you or your bank, which needs to comply with the National Credit Act. Before a credit provider can grant you access to credit, it must conduct an affordability assessment, to make sure you can afford the credit.
New and existing customers are affected by the tightening up on access bonds in the following ways:
* New home loan customers will not have the option to access anything but “prepaid” funds in their home loans. If they want to access “repaid” capital, they will have to apply for a re-advance.
* Existing home loan customers with seven years or less to the end of their home loan term will not be allowed to access repaid capital but will still be allowed to access prepaid funds.
* Existing customers will have access to repaid capital for the first 15 years of the loan.
First National Bank (FNB) is in the process of informing its Flexi Option customers who are approaching the end of their home loan terms that henceforth they will not be allowed to draw any repaid capital; they will be allowed to access prepaid funds only.
Ewald Kellerman, head of sales at FNB Home Loans, says this will apply to customers with a remaining loan term of seven years or less. He declined to say how many customers will be affected.
FNB has taken this step to protect customers from the risk of facing unaffordable repayments on their home loans, he says.
“We are seeing customers drawing too heavily too late. Late in the loan, the instalment becomes unaffordable and this can destroy the consumer’s finances, or result in the consumer falling into arrears,” Kellerman says.
FNB’s Flexi Option access bond allows you to withdraw funds from your home loan up to “a limit”, Kellerman says.
“On some of our older bonds, this limit is set at the original registered bond amount, allowing a customer to withdraw up to the initial value of the loan. Your repayments adjust accordingly, but the loan term stays the same. Therefore, our customers face the risk of inflating the monthly repayment to a point where it becomes unaffordable.”
To prevent this, Kellerman says, the bank is contacting customers who have a remaining term of seven years or less on their home loans and continually use the Flexi Option to borrow up to a certain limit. Customers are advised that, because the loan is approaching the end of its term, they will have access to prepaid funds only.
FNB customers are being informed telephonically and given 72 hours to decide if they want to access funds up to the limit (maximum), before the bank effects the change, Kellerman says.
“After the change, the customer will continue to have access to any additional funds deposited to the home loan.”
Absa and Nedbank do not allow their customers unrestricted access to repaid capital in their home loans, and as of April last year, nor does Standard Bank. All of the banks do, however, allow home loan account holders to apply for a re-advance, which may or may not be granted and could involve different terms (see “What is a re-advance?”, below).
Steven Barker, head of home loans at Standard Bank, says the bank withdrew its AccessBond Limit option (revolving loan facility) to new applicants as a result of changes to legislation.
However, existing AccessBond Limit customers can continue to make use of the facility, he says.
Standard Bank has a similar “product rule” to FNB’s.
“Once the customer reaches the last five years of their term, the facility is switched to an AccessBond Link option, allowing access to prepaid monies only, until the end of term,” he says.
WHAT IS AN ACCESS BOND?
An access bond is a home loan into which you can pay additional funds, over-and-above your required repayments, to reduce your interest charges, and from which you can withdraw those additional funds if you need them.
Some banks also allow you continually to withdraw a percentage of the capital amount of your loan that you have repaid – up to a pre-determined limit – typically, the amount for which the mortgage bond was registered. This provides you with a revolving credit facility.
All of the “big four” banks offer the facility to withdraw surplus and repaid funds. If your home loan is with Absa, it’s called FlexiReserve. If it’s with First National Bank (FNB), it’s called a Flexi Option. Nedbank calls its access facility NedRevolve, and at Standard Bank, it is known as AccessBond.
An access facility is attractive not only because it enables you to pay off your home loan before the term ends – and in so doing, save thousands of rands in interest – but also because it gives you any-time access to that money should you want or need it. And you can use the money as you please.
Access is normally instant – via an ATM or online banking – and you typically have to draw a minimum of R1 000 at a time (a day). A maximum daily limit may also apply. For example, on NedRevolve, the maximum daily limit is R100 000.
Generally, you have to apply for an access facility; it is not always granted automatically when the bank grants you a mortgage bond.
Usually, to qualify for the facility, you have to have another account with the bank that granted you the mortgage bond. This is so that you can transfer funds from your home loan account into an account linked to it held at the same bank.
Most banks won’t allow you to link your home loan account to an account held at another financial institution. Where this is allowed, you have to go into the branch to transfer the surplus from your home loan account into the account held at the other bank.
If you have an ordinary home loan, all of the big four banks will let you pay additional funds into your home loan. However, if you want to access that money, most banks (Absa, Nedbank and Standard Bank) will require you to apply for an access facility. Only FNB will give you the funds without making you apply for an access facility, but you will need to apply for your money.
Customers with an access bond used to be allowed to go on withdrawing as much of their repaid capital as they liked – right up to the last day on which the loan fell due. However, with the introduction of the National Credit Act, the banks are now required to carry out an affordability assessment before advancing credit to you (see “What is a re-advance?”, below).
Terms and conditions apply to an access bond, and they differ from bank to bank.
Some banks suspend or withdraw your access facility when:
* Legal action is being taken against you, because you have defaulted on your home loan repayments (you are in arrears); or
* The mortgage bond is in the process of being cancelled.
WHAT IS A RE-ADVANCE?
Unrestricted access to repaid capital in a home loan was a feature of what is commonly referred to as an “access bond”. Having access to repaid capital enabled you to use your home loan as a revolving credit facility. But with the tightening up of access to credit (the National Credit Act), if you want to draw what you have repaid, you may now have to apply for a re-advance.
The beauty of a re-advance is that you don’t have to incur the cost of registering an additional mortgage bond, but your interest rate may increase. (It doesn’t cost you anything to apply for a re-advance.)
The bank must perform an affordability assessment to ensure that you qualify for the total loan and can afford the increased instalment. And your property may be subject to a revaluation, depending on the bank.
Ewald Kellerman, head of sales at First National Bank (FNB) Home Loans, says FNB will seldom revalue your property, because re-advances do not exceed the initial registered loan and so the property is considered adequate security.
At Absa, a re-advance is allowed once only during your loan term and is subject to the value of your property having increased over time.
At Standard Bank, a re-advance is permitted more than once during your loan term and is subject to a property valuation, Steven Barker, head of home loans at Standard Bank, says.
‘BANK HAS WRECKED MY FINANCIAL PLAN’
First National Bank (FNB) client Mr F this week complained to Personal Finance about the negative effect the sudden withdrawal of his Flexi Option will have on his financial plans.
Mr F is a pensioner, and his 25-year home loan is five years from the end of its term.
He describes himself as asset-rich, but relies on his access bond to supplement his pension.
Mr F owes R645 000 on his home loan (the original loan was R925 000) and is used to having piecemeal access to the R280 000 in capital that he has repaid.
The property against which the FNB mortgage bond is registered is worth at least R4 million. Mr F owns two other properties, including one in the United Kingdom that he rents out.
He plans to sell two of the properties to settle his FNB home loan and buy a new home in a retirement village when one becomes available and it is a more favourable time to sell. For this reason, he wants to keep the access facility on his bond open.
“I’ve just returned from a trip to the UK, where I signed up my tenant for another 12 months. Had I known FNB was going to spring this on me, I would not have given the tenant such a long lease,” Mr F told Personal Finance.
FNB gave Mr F 72 hours to decide whether or not he wants the R280 000 repaid capital.
“If the bank knows that it is going to do this to customers who have seven years to go before the end of the bond term, why did they not tell me this a year ago?”
* Late on Friday (September 20), FNB offered to reinstate Mr F’s Flexi facility for one year only.