Re-advance on a home loan
Homeowners who have already paid off a sizable portion of their bond have the option of approaching their lender for a re-advance,” says Kondowe. “This means re-borrowing part or all of the capital they have already paid off.
Since a re-advance does not extend the repayment period of the bond or change its interest rate, while this arrangement does free up a lump sum, it also increases their monthly instalments.
If you’re trying to reduce your monthly expenses, a re-advance isn’t the best idea unless it’s being used to consolidate debt by paying off more expensive loans. If monthly expenses aren’t a problem, but you need access to more capital than your access facility has in order to conduct essential maintenance or repairs, for example, a re-advance can be a useful option.
Refinancing your home
For homeowners whose properties have appreciated significantly, refinancing is usually a more cost-effective option than a re-advance.
Refinancing means taking out a new home loan for the difference in value between your property’s original purchase price and its current estimated value. This extra money can then be withdrawn to pay off more expensive debt like credit cards or personal loans or be kept as equity in the bond.
According to Kondowe, one of the main benefits of refinancing is the opportunity to secure a better interest rate than on your original bond. This can effectively reduce monthly repayments (assuming the equity is not withdrawn), making it a valuable tool for homeowners struggling with cash flow.
Those who don’t have a bond can refinance their properties will find it is also cheaper in the short-term than a personal loan.
When a homeowner applies for refinancing, the home will have to 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.
However, it’s important to note that homeowners will have to cover refinancing costs, including bond registration fees, legal costs, VAT and deeds office levies.
If you consider any of the above options, keep the long-term effects on your bond in mind and remember that paying down any debt takes discipline. If you have any doubts, rather raise questions and explore any alternatives that may be available to you before you commit to anything, advises Kondowe.
Enlist a professional
Lenders are currently very motivated to help homeowners in financial difficulty. However, it’s not always easy for homeowners to negotiate for assistance on their own.
It can be very intimidating approaching your lender for help when you’re not sure of what your options are, or how much assistance you can expect to receive. For this reason, I always recommend chatting to a bond originator to go through the options available to you and help you negotiate the best possible deal for your situation.