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Refinancing your bond: The pros & cons

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 home loan comparison service ooba Home Loans to properly assess the pros and cons.
  • Homeowners can access equity in their homes by applying for a re-advance or a second bond.

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.

What is equity?

Equity, in regards to a home loan, is the difference between the amount you owe on your home loan, and the actual value of the home. For example, if you owe R1 000 000 on a home loan, but the home’s value has risen to R1 500 000, that extra R500 000 is equity that can be accessed if you refinance your bond.

Bond refinancing to access equity

Refinancing your home gives you access to 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 from their refinanced home loan, settling their accounts, and leaving the repayment of the now-larger home loan as their main monthly expense.

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.

The process of applying for bond refinancing

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 approximately R29 778, which needs to be weighed against the refinancing benefit.

Seek the advice of a home loan comparison service

ooba Home Loans, South Africa’ largest home loan comparison service, offers free advice on the questions homeowners typically have about the financial implications and costs associated with refinancing their homes.

In addition to this, ooba Home Loans offers a range of tools that make the home buying process easier. Start with their Bond Calculator, then use the ooba Home Loans Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

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Ooba home loans services are simply the best. My Consultant Bianca Dancer was so hands on and helpful from the get go. She guided me through the entire process and put me at ease being a first time buyer. I highly recommend their services.

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Estelle Vorster was really helpful in securing the best deal for my home loan, she not only negotiated a lower interest rate she went as far as securing 50% discount on the transfer costs.

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