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Access Bonds

How Does an Access Bond Work?

A home loan with an access facility offers a very effective money management facility—with the emphasis on management. Any amount that you pay into your home loan, over and above the agreed instalment, will result in you paying off your home loan faster and thereby saving a huge amount in interest payments. An access home loan allows you to withdraw any surplus funds you have built up in your home loan.

All banks offer access home loans, they may use different names but the facility is the same. If you did not ask for this facility when you took out the bond, you can apply for it at any time. The bank will do a full risk assessment, as required by the credit act, to ensure that you are not over-indebted.

Note: At this very moment, the world wide credit crisis and high interest rates have forced South African banks to reduce credit and a number of banks have made changes to their access home loan accounts. Please check with your bank. (Oct 2008)

Once your facility is approved you can get electronic access by linking your current or savings account to your home loan. You will then be able to move excess funds from your home loan to your other accounts. The brilliance of an access home loan is that you can use it as a savings account. If you pay the prevailing interest rate of 15.5% on your home loan, any extra money you pay into your bond will save you interest of 15.5%, you cannot get a better investment!

You can deposit your salary into you bond account and immediately start saving as interest on home loans is calculated on a daily balance. You then transfer sufficient money to your current account to cover all your deductions such as debit orders and transfer further funds as needed during the month. In the meantime you have saved on interest and you are paying off your home loan faster.

Your current or savings account must be at the same bank where your home loan is held to facilitate the electronic transfer. You will also be able to draw funds at ATM’s or branches, or through telephone banking.

As an interesting exercise, use a home loan calculator (available on the internet at the banks web sites) to calculate just how much you will save by paying off extra on your home loan. It may be such an eye-opener that you don’t even want to use your access facility to withdraw funds. Remember you home loan interest is calculated, on the daily balance, so as soon as you draw funds, the amount of interest debited to your home loan for the next month will be higher.

Having said that, it is still a wonderful way to save. Pay any extra money into your home loan, use it as a way to save for that holiday or deposit on a new car. Pay your bonus directly into your home loan before you spend it all. We mentioned financial management in the first paragraph, remember?

If you have sufficient equity in your home loan and you need to buy a new car the best option is to draw the money from your home loan. You will probably save at least 4% in interest. But...remember that a home loan is a long term debt and a car loan should be paid off over a maximum period of five years. So, calculate what you would have paid on car finance and pay that amount into your bond every month—now that’s called financial discipline! If you pay off your car for twenty years, the car will be long gone and you will still be paying, plus you’ll be paying for the next car as well.

Put your interest in the future, because you're going to spend the rest of your life there.

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