For homeowners who are really struggling to make ends meet this month, it may seem like a very good idea to “borrow” some money from your access bond to help pay the bills – or even to “consolidate” all of your debts into your home loan account.
“At the start of the year we always see an increase in what the banks call ‘further advances’ – which is when homeowners re-borrow all or part of the amount they have already paid off their bond in order to finance something else,” says Rudi Botha, CEO of BetterBond*, SA’s leading bond originator.
“However, deciding to use the home equity you have taken years to build up to clear short-term debts is really not something you should do impulsively, as it has many possible implications that could drastically affect your financial future.”
For a start, he says, pulling cash out of your bond account to pay off other debts will push up your monthly bond repayments, and could put your most important asset at risk if you cannot afford the new instalments. “It’s bad enough to miss car payments or credit card instalments, because that dents your credit record and could result in the car being repossessed and/ or debt judgments being taken against you. But if you can’t manage the higher monthly repayments on your newly-enlarged bond, you could lose your home.
“In fact, we believe that debt consolidation using a home as security should only be considered by extremely disciplined borrowers who have the means and a plan to pay back all of the equity they have extracted within a very short period – so that they don’t end up paying a huge amount of extra interest on their bond.”