How Does A Second Bond Work In South Africa
If you own a property in South Africa the facility of a second bond allows you, the home owner, to access equity for renovations, debt reduction, or any other financial venture. The equity that can be accessed is based on the difference between the amount the homeowner still owes on a home loan, and the latest market value of the property. So let us consider the scenario that you owe R1 000 000 on your home loan, but the value of the property has risen to R1 500 000. The difference of R50 000 is the equity that you could be able to access.
What does the process of applying for a second bond entail?
When applying for a second bond the lender will carry out the same checks as those that are needed for a first home loan.
This means that the property will need to be revalued to ensure it meets the requirements for the additional loan value.
The homeowner’s credit history will need to be reviewed to ensure the client’s ability to make the increased repayments.
Once these checks are done and have met with the lender’s approval, the application will be approved. The funds would be available immediately if they are a portion of the first home loan. However, if the new bond needs to be registered at the Deeds Office this could take much longer.
Advantages and disadvantages of taking a Second Bond on your home.
One advantage of raising funds using a second bond in this way is that you will have a much more favourable interest rate.
The funds raised can be used in any number of ways but most often they are used clear debts. Although this does leave the bondholder with only one loan as a major expense it must be remembered that loan repayment will now be higher.
Another advantage of a second loan is that it releases funds that can be used for making improvements to the property. Done with due consideration to market value this can will increase the value of your investment.
The downside…
However, the downside is that the value of a property can also depreciate due to changing circumstances and if a second bond is taken out this could lead to a situation in which the total bond is higher than the value of the property.
A disadvantage of taking a second bond is that a second bond will incur costs. These costs include a second bond registration, VAT, and the deeds office levy. It is therefore important for the homeowner to factor these costs into the financial package offered by the Lender.
Taking a Second Bond in South Africa can be a sound and very beneficial financial investment. It offers the homeowner equity at very favourable interest rates and facilitates the maximisation of the owners existing investment. It does however require the homeowner to seek professional advice and to carefully assess the advantages and disadvantages before proceeding. So get professional advice and use a Bond Calculator to ensure a successful acquisition of a Second Bond.
How Much Will You Pay on a R500 000 and R1 000 000 Home Loan in South Africa?
Below are some of the FAQ regarding the cost of taking a Home Loan in South Africa.
What is the monthly Bond repayment on a R500 000 and R1000 000?
A home loan of R500 000 will realise an estimated monthly repayment of at least R6000.
For a home loan of R1 000 000 the monthly repayment is estimated to be at least R13000.
It is very important to remember that any Bond repayment is dependent on many other factors. The figures quoted above are only rough estimates using an interest rate of 8%.
Can I get a more accurate assessment of my bond repayments?
A Home Loan Calculator based on South African Banks’ interest rates will be more accurate as it takes into account the terms and conditions currently in place in South Africa.
Bond Calculator
What is the current interest rate on a home loan in South Africa?
On Friday, July 28, 2023, the National average 30-year fixed mortgage APR is 7.35%. The repayment figure of 8% quoted above is therefore a little higher as most home loans are given for 20 years, not 30. South African interest rates are dependent on the Prime lending rate.
What is the current prime lending rate in South Africa?
As of May 2023, the prime lending rate in South Africa is 11.75%. This prime lending rate helps determine the Bank’s lending rate.
What % of my salary should I put aside for my monthly home loan repayments?
Current estimates suggest that you should set aside 30% of your salary for home loan repayments. This % could change depending on interest rates.
Which other factors will affect my bond repayments?
Credit rating.
A credit rating of 670 and above is considered an excellent credit score. This may earn you a lower interest rate.
Your deposit.
The higher your deposit the less risk you are to the Bank. So having a good deposit puts you in a position to negotiate for a lower interest rate on your Home Loan.
Type of bond.
A home loan comparison service can get you lower interest rates. You need to submit your loan application to many banks, so you can compare the deals offered.
