Two banks this week rubbished a claim made by a non-bank lender that “the age of the access bond is over”. Access bonds are alive and well, and borrowing through your home loan remains one of the cheapest forms of credit.
However, the days of having unfettered access to the equity in your property have long been a thing of the past.
Before the introduction of the National Credit Act (NCA) in June 2006, it was relatively easy to access additional capital through your home loan. But since the NCA, if you want to borrow against the appreciation of your property, you will have to undergo an affordability assessment, which may trigger an increase in your lending rate.
Praven Subbramoney, the chief executive of private lending at First National Bank (FNB), explains the difference between accessing “pre-paid funds” in your home loan and accessing equity in your property: “In a typical home-loan account, your monthly instalment is a combination of capital, interest and fees. This repayment is known as the contractual repayment. Any payment over and above your monthly instalment is referred to as pre-paid funds.”
The typical access facility (known as a Flexi Facility at FNB) enables you to access pre-paid funds without this affecting your interest rate.
However, if your property has appreciated in value and is now worth more than it was when you signed up for the loan, you may want to unlock the equity in your property. In this case, you will have to enter into a new contract with the bank, because the term of the loan or the bond amount will change.
Subbramoney says the new facility will be subject to a new credit affordability assessment (in terms of NCA), which may result in you being charged a higher or lower interest rate, depending on market conditions.
Nondumiso Ncapai, the head of business development at Absa Home Loans, says: “There is no interest-rate adjustment when customers make use of their existing Flexi Reserve (Absa’s name for its access facility) to withdraw funds that have been paid in advance.”
Accessing pre-paid funds does not change the terms of the contract; you are merely accessing your own money.
Customers who have an existing access facility approved on their home loan, and who have paid more than their required monthly instalment, can access pre-paid funds via internet banking or a branch.
You can use pre-paid funds for any purpose – from home improvements to paying for education – but conditions apply. At Absa, for example, they include the following:
• You cannot make cash withdrawals or pay third parties directly from your home-loan account. You first have to transfer the money from your home-loan account to your transaction account;
• Your home-loan account cannot be in arrears;
• The minimum transfer amount is R1 000;
• The maximum transfer amount is set by you and you can change any of the limits that apply to your banking profile.
Ncapai says an access facility allows bond-holders to pay more than the required minimum monthly loan repayment. This has the following advantages:
• A huge saving in interest, because the additional payments will reduce your outstanding balance; and
• In the case of an emergency, you have easy access to this money (the pre-paid funds).
It’s advisable to activate the access facility on your home loan, even if you have no intention of using it in the near future. Customers who have paid extra into their home loans but have not activated the access facility generally have to apply to the bank to access their money.
Ncapai says that, in such cases, Absa approves access to these funds only once the required credit and risk assessments have been performed. “This is to protect consumers from over-committing themselves to a debt that they cannot afford. The reality of current economic conditions, along with NCA requirements, and a prudent approach to approving access to funds via a home-loan facility, is key to ensuring that a responsible lending culture is maintained.”