Q1: I’m approaching the end of my home loan repayments – what should I be considering?
Keeping your bond open gives you continued access to a low-interest credit facility, which could be useful for home improvements, consolidating high-interest debt, or as an emergency fund. To retain access, you must notify the bank in good time and apply before the loan term ends, as normal credit approval processes still apply.
If you prefer full ownership of your property and don't plan to access further credit, you may choose to cancel the bond and obtain your title deed. This requires a formal process through the Deeds Office, handled by a conveyancer. While the bank doesn’t charge a cancellation fee, legal costs for this process are your responsibility.
Keep these key factors in mind:
- You must give the bank 90 days' notice before the end of the bond term if you plan to cancel.
- The cancellation process can take up to three months, depending on external factors such as delays at the Deeds Office, issuing of municipal clearance certificates, and SARS requirements.
- If you’ve linked insurance payments to your bond, redirect them to another account to avoid a lapse in cover once the bond is closed.
- If you're thinking of using home loan funds, it's best to use them for long-term benefits such as settling high-interest debt, setting up a financial buffer, or investing for long-term growth. Speak to a financial advisor to make the most informed decision.
Q2: Is it wiser to pay off and close my bond or keep it open – and why?
Keeping your bond open can be financially beneficial, especially if you’re disciplined with money.
Any extra funds you deposit will reduce the balance on which interest is charged, effectively lowering your borrowing costs while still giving you access to those funds. You will have access to one of the most affordable credit options available and the flexibility to fund emergencies, consolidate debt, invest in renovations, or even purchase assets.
However, if you're likely to spend impulsively, keeping the bond open may undermine your financial progress. In that case, cancelling the bond may be the smarter option.
Q3: Do banks charge a fee for keeping a bond open? If so, how much?
A monthly service fee applies while your bond account is open. This fee covers account administration and is charged irrespective of whether you use the facility. For accounts under the National Credit Act (NCA), the fee typically starts at around R69 per month, though this varies by bank and customer profile.
Q4: If I don't close my bond, can I still acquire the original title deed?
No. The original title deed is only released once the bond has been formally cancelled through the Deeds Office.
Q5: If I keep my bond open, can I use the money to invest in whatever I wish (e.g., other ventures, investment property, art, investment accounts?) What are the implications for repayments?
Yes, you can use any available funds for various purposes, from investing in property to starting a business or buying assets. However, once you access these funds, your outstanding balance increases, which means higher monthly repayments.
Repayments are recalculated based on the amount used, the time remaining on the loan, and your interest rate. If needed, you can apply to extend the loan term. Approval will be subject to a credit assessment.
Before using your home loan to invest elsewhere, speak to a financial advisor. While home loan interest rates are low, other investments carry risk, and returns aren't guaranteed. You could end up with larger repayments and no real financial gain if your investment underperforms.
Q6: If I choose to keep my bond account open and use the money for investment, what are the best options for a good return on investment (ROI)? (e.g., offshore, stocks/bonds, property, retirement products)
It depends on your financial goals and investment timeline. You need to weigh the interest you’ll pay on your bond against the potential (and uncertain) returns from investments. Interest on your bond is a fixed cost; investment returns can fluctuate or even be negative.
This decision should be guided by a licensed financial advisor who can help match your goals to suitable investment options and assess the risks.
Q7: Is there a limit to the funds I can withdraw from my open bond account? Are there any penalties?
If your bond includes a flexible home loan or access facility, you can usually withdraw any extra funds you've paid above your required monthly instalments. There’s no penalty for accessing this prepaid amount. However, if you want to borrow an amount that exceeds the prepaid funds available in your bond, this will be treated as a new loan and require a formal credit assessment process.
Always consult your bank and review your specific loan agreement before planning to access or extend credit through your home loan facility.
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