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The benefits and pitfalls of refinancing your home

People who manage their home loan payments well can apply to refinance their homes when they need to access cash for an important purpose.

Bond Refinancing

Article summary

  • There are benefits and pitfalls to refinancing your home. Talk to SA bond originators ooba to properly assess the pros and cons.
  • Refinancing your home could mean a lower interest rate, which can ease pressure on your monthly expenditure.
  • Homeowners can access equity in their homes by applying for a readvance or a second bond.
  • Costs associated with refinancing a home can be explained by SA bond originators ooba.

More and more people are looking at ways to reduce their monthly expenses. Homeowners looking to release equity or consolidate debt have the advantage of being able to refinance their homes, often at a lower rate, which saves money in the short term. Equity exists through the repayments you’ve made or the increase in value of your property over time, or both. Refinancing your home gives you access to those funds at an interest rate that better suits your pocket so you can afford to pay tuition fees, complete a home renovation or reduce your debt. Some homeowners choose to consolidate their debt by withdrawing a lump sum, settling their accounts, and leaving the repayment of the home loan as their main monthly expense.

Rhys Dyer, CEO of ooba, South Africa’s leading bond originator, explains that many homeowners don’t realise how much equity they have in their homes due to the strong property price gains over the last few years. “If and when it gets to the stage that the homeowner needs extra money, one of the best ways to do it is to refinance their home by applying for a readvance or by registering a second bond on their property. Those who don’t have a bond can also refinance their properties to raise capital. It’s also cheaper in the short-term than a personal loan or financing a car the conventional way because home loan rates are usually the lowest.”

It’s a good idea to refinance a home with a view to making improvements to the property. This will increase its value. The downside is that the value can also depreciate and if a second bond is taken out this could lead to a situation of negative equity.

When a homeowner applies for refinancing, the home will be revalued and the applicant’s credit history and affordability for the additional finance will be reviewed. Once these assessments meet with the lender’s approval, the application will be approved. If the homeowner is borrowing a portion of the original home loan or accessing funds registered for future use, the funds will be made available immediately after approval.  Should the lender be required to register a second bond, the funds will be payable after the bond is registered at the deeds office, which could take up to six weeks.

Costs included in the refinancing deal will be for the second bond registration, VAT and the deeds office levy. For a further loan of R1 000 000 home loan the legal cost to register a second bond would be R22 869,50, which needs to be weighed against the refinancing benefit.

Dyer says, “Quality originators offer free advice on the questions homeowners typically have about the financial implications and costs associated with refinancing their homes. We have also negotiated more favourable rates for customers as their loan-to-value ratio improves – in most cases this is preferable to switching and incurring unnecessary costs and hassles.”

South Africa’s leading bond originator offers a range of home loan calculators to help people looking to buy a home determine what they can afford. Click here to access ooba’s free, online prequalification tool, the ooba Bond Indicator. Then, when you’re ready, you can get prequalified or apply for a home loan with ooba.

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VAT Increase Disclaimer

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

Please note that this increase will retroactively effect VAT-inclusive calculations in articles contained in our website.

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