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Why access bonds are excellent savings vehicles

An access bond is a wonderful way to manage your bond repayments, while still keeping additional funds available if you need them. Here’s how it works.

Access Bond

Aside from being one of the most valuable investments you’ll ever make, a home loan can also provide an effective method for managing your funds. In fact, with the help of an access bond, your home loan can function effectively as a savings account at the same time, with all the benefits that go with that.

What is an access bond?

An access bond is a type of home loan that allows borrowers who have paid extra money into their bond to withdraw the extra money should they need it. “Access bonds are useful for homeowners in this way, because they allow the homeowners to pay any surplus funds they have into their home loan account, secure in the knowledge that if they need the funds, they can withdraw them again,” says Kay Geldenhuys, Head of Sales Fulfilment at ooba home loans, South Africa’s biggest home loan comparison service.

This means that homeowners can benefit from paying interest on a smaller capital amount while the surplus funds are in the bond, but can access the money if they need it. For example, if you had a R1 000 000 bond with a monthly repayment of R9 650 at an interest rate of 10% over 20 years, and you paid in an extra R500 each month, the saving in interest charges is R211 739 and the term of your bond would be shortened by two years and nine months.

How you save money with an access bond

A smart way to invest your surplus money is to deposit it into your home loan account as you are, in effect, saving at the rate of interest of the loan without paying tax on the interest saved, which is almost certainly more than you’d be guaranteed anywhere else. “It makes more sense to keep your surplus money in an access bond where you are going to get the best return at no risk at all,” says Geldenhuys. “This is also an ideal option to accumulate tax-free savings.”

Another way of saving money is to deposit your salary into your bond account and transfer sufficient funds into your current account to cover all your deductions like debit orders and your household expenses. Any surplus funds remaining from your salary will reduce the interest charges on your bond.

How to get an access bond

All banks offer access bonds. You can either have the facility incorporated into your home loan when your home loan finance application is approved or you can make an application for this facility after your bond has been registered. You can also apply to have a normal bond converted into an access bond at any stage during the term of your home loan, provided that your home loan has been well conducted and you are not under debt review.

How much money can you withdraw from the access bond?

“It’s important to understand that an access bond does not give you the ability to borrow all the money you have paid in – you can only withdraw the funds you have paid over and above the monthly instalment,” says Geldenhuys.

For instance, if your bond repayment is R8 000, and for 10 months you had paid R8 500 into the home loan account every month, you would be entitled to withdraw R5 000 if you needed to. If you wish to increase your access bond facility, the bank will be required to do a full risk assessment as required by law to ensure that you are not over-indebted.

“An access bond is a wonderful way to manage your home loan repayments, while still keeping additional funds available if you need them,” says Geldenhuys. “Of course, you’ll realise the best benefits of interest savings and the satisfaction of paying off your bond sooner if you don’t withdraw the extra money you have paid in, but most people rest easy knowing that they can access their funds in an emergency.”

To take advantage of the additional savings that the access bond provides, you first need to acquire a home loan. ooba home loans, South Africa’s largest home loan comparison service, offers a range of tools that can make the home-buying process a lot easier. Start with their home loan calculators, then use the ooba Bond Indicator, a free, online prequalification tool, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

How much can you afford?

Calculate the home loan you are likely to qualify for and how much you can expect to pay monthly on your bond repayments.

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Effective 1 April 2018, by order of National Treasury, Value-Added Tax (VAT) will increase from 14% to 15%.

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