Advantages and disadvantages of an access bond in South Africa
An access bond is a home loan facility that allows homeowners to deposit extra funds into their bond account and withdraw them when needed. This financial tool can be highly beneficial, but it also comes with certain drawbacks.
If you're considering an access bond in South Africa, understanding both the advantages and disadvantages can help you make an informed decision.
Advantages of an access bond
1. Interest savings
By depositing surplus funds into your access bond, you reduce the outstanding loan balance, which lowers the interest charged. Over time, this can result in significant savings and a faster bond repayment period.
2. Flexible access to funds
One of the key benefits is the ability to withdraw any extra funds deposited. This makes it a useful financial safety net for unexpected expenses, such as medical emergencies, home repairs, or school fees.
3. Faster bond repayment
If you consistently deposit extra funds and leave them in your access bond, you can shorten your loan term considerably. This helps you become debt-free sooner while saving on interest.
4. Effective use of surplus income
You can deposit additional funds into your bond account with an access bond, such as bonuses or rental income. While the funds are in the bond, they reduce the loan balance and the interest charged, but they remain available if needed.
5. No need for additional loan applications
Instead of applying for a personal loan or credit card when you need funds, an access bond provides a built-in source of credit. This eliminates the hassle of new credit checks and loan approvals.
Disadvantages of an access bond
1. Requires financial discipline
Since the extra funds are easily accessible, there’s a risk of using them for non-essential expenses. Without discipline, homeowners may not fully benefit from the long-term savings an access bond offers.
2. Higher initial interest rate in some cases
Some lenders may offer slightly higher interest rates on access bonds compared to standard home loans. This could make your monthly repayments slightly higher if you do not plan to use the access facility wisely.
3. Potential for over-borrowing
Because of the convenience of withdrawing extra funds, some homeowners might become reliant on their access bond as a source of continuous credit. This can lead to extended repayment periods and increased interest costs.
4. Withdrawal restrictions
While most banks allow free access to surplus funds, some institutions may have restrictions or fees for withdrawals. It’s important to check your lender’s terms to understand any limitations.
5. Market and interest rate fluctuations
Interest rate hikes can affect monthly bond repayments, making it more expensive to access and repay borrowed funds. Homeowners should be mindful of economic conditions when using their access bond.
Is an access bond right for you?
An access bond can be a valuable tool for South African homeowners who are financially disciplined and looking to reduce interest costs while maintaining liquidity. However, it requires responsible money management to ensure that the benefits outweigh the risks. If used wisely, it can be a powerful financial resource that helps you save on interest and achieve your homeownership goals faster.
How to obtain an access bond
Access bonds are available from all major banks and may be added to your home loan in two different ways. When your financial application is accepted, you can first ask for the access bond facility during the home loan approval process. Second, after your bond has been registered, you can apply for the access bond facility post-registration. Furthermore, if your loan has been properly handled and you are not currently under debt review, you can convert an existing standard bond into an access bond at any time throughout the life of your home loan.
Access bonds provide South African households more financial control and efficient cash flow management in a flexible and useful way. Get in touch with Knight Frank today if you're looking to buy your next home. Our professionals are passionate about assisting you in finding the home of your dreams.