Just Property

18 September 2023 | Advice, Buyers, Invest, Sellers

Times Are Tough – Could Your Bond Offer Short-Term Relief?

Much like the broader economic environment, the property landscape is in a constant state of flux. 2023 has brought unique challenges. With an array of options available for those exploring mortgage-related decisions, understanding the nuances and long-term repercussions of decisions made during volatile periods becomes critical. We asked industry leaders for their perspective on whether one can leverage a bond for short-term relief.

“Navigating current economic conditions demands caution and a clear head,” says Paul Stevens, CEO of Just Property. “The evolving landscape, the lingering effects of the pandemic, higher interest rates, and the repercussions of load-shedding have left many South African homeowners grappling with job losses, diminished salaries, or hampered business operations.

“While property owners may be tempted to utilize the option to dip into their bonds during economic downturns, such decisions shouldn't be made lightly. Although tapping into a home loan might offer relief for those under severe financial pressure, it's crucial to evaluate every aspect of this choice," he warns, “but there are certainly some options one can consider.”

BetterBond's CEO, Carl Coetzee, sheds light on a spectrum of options homeowners might contemplate:

1. Home Loan Payment "Holiday” Opting for a brief pause on your home loan repayments can be a useful strategy to prevent slipping into arrears and potentially affecting your creditworthiness. However, Coetzee reminds homeowners, "While this offers a temporary respite, interest will still accrue, extending the loan's duration beyond its original term." If considering this avenue, he suggests that homeowners contribute extra to the bond as soon as feasible.

2. Accessing Your Access Bond

While interest rates are at a 14-year high, they are still well below the 23.99% seen in June 1998.  Leveraging an Access Bond might offer the most economical route to needed funds. Unlike payment "holidays", interest only applies when funds are withdrawn, without incurring extra charges. Monthly repayments will adjust based on the funds drawn and be spread across the bond's remaining lifespan.

3. Opting for a Re-Advance

This option permits homeowners to access the difference between the original home loan amount and what is presently owed. "A comprehensive application, detailing all financial ins and outs, will be required and is subject to standard credit checks," says Coetzee. While the initial interest rate generally holds, no new registration is needed. Coetzee advises bondholders to ensure that any revised payments fit within the loan's original duration to avoid excess interest.

4. Securing an Additional Home Loan

Although potentially helpful, Coetzee cautions about the associated costs of this route. Additional charges can accrue interest over the loan's term. Anticipate initiation fees (around R6 000) and attorney registrations. A shorter loan term, perhaps five years, could minimize interest, with rates contingent on individual financial risk profiles.

5. Modifying Your Existing Home Loan

The options available here vary with each financial institution, with personal risk profiles affecting potential renegotiation of interest rates or term extensions. Although a more extended period might lower monthly payments, it could culminate in added interest.

6. Transitioning Your Loan to Another Bank

Transferring mortgages between institutions can be expensive and should typically be a final consideration. The costs can include an initiation fee (about R6 000) and cancellation fees (which average around R5 000). Moreover, the entire loan application and vetting procedure is recommended. Coetzee recommends you do a thorough cost-benefit analysis before making such a move.

Stevens adds an important reminder: "Should any costs arise from your decision, be aware that incorporating these into the loan can significantly boost the interest over its term." The initial step, according to Stevens, should be to initiate an open dialogue with your lending institution for a comprehensive assessment.

7. Selling Your Property

If, after careful evaluation, you decide that it’s not advisable to leverage your bond, selling your property could be a viable alternative. “It’s still a buyer’s market in many regions, but well-priced properties are inclined to attract purchasers. Our property specialists can offer you precise, data-informed property evaluations and help you make the right decision for your circumstances,” says Stevens. 

“Reliable, obligation-free counsel is essential during difficult decision-making phases; it is always best to get the data you need from reliable property professionals," he advises.

For more information on Just Property call (087) 059 8888. Follow Just Property on Facebook and Twitter Just Property Let's Open Doors

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