What you need to know about access bonds in South Africa

Securing the right financing can make a significant difference in achieving your property goals. Access bonds have emerged as a popular option for many South Africans looking to buy, build, or improve their homes. 

What is an access bond?

An access bond is a type of home loan that allows the borrower to access any surplus funds that have been paid into the bond. Essentially, if you pay more than the required monthly instalment, the extra amount is available for withdrawal at a later stage. This feature provides a flexible and convenient way to manage personal finances, offering liquidity when needed.

Purpose of access bonds

The primary purpose of an access bond is to provide homeowners with flexibility and financial control. Some of the key purposes include:

• Home improvements: Funds can be easily accessed for renovations or home improvements, adding value to the property.

• Debt consolidation: Borrowers can consolidate higher-interest debts into their home loan, benefiting from the lower interest rates typically associated with home loans.

• Emergency funds: Access bonds can serve as a financial safety net, allowing homeowners to withdraw funds for unexpected expenses.

• Investment opportunities: Homeowners can tap into their access bond to invest in opportunities that may arise, leveraging the equity in their property.

How access bonds differ from traditional loans

While both access bonds and traditional home loans aim to provide financing for property purchases, there are several differences between the two:

1. Flexibility in repayments

Access bonds allow borrowers to deposit extra funds and withdraw them when needed, providing greater control over personal finances. In contrast, traditional loans do not offer the same flexibility; while extra payments on these loans can reduce the loan term and interest, the additional funds are not readily accessible.

2. Interest calculations

For access bonds, interest is calculated on the daily outstanding balance, so depositing extra funds can significantly reduce the overall interest payable. In contrast, traditional loans also calculate interest on the outstanding balance, but there is no benefit from temporarily depositing extra funds since they cannot be withdrawn.

3. Financial planning

Access bonds allow for better financial planning and liquidity management, enabling homeowners to respond to changing financial circumstances. In contrast, traditional loans offer predictability in repayments but lack the flexibility to adapt to varying financial needs.

Benefits of access bonds

• Lower interest costs: By depositing extra funds, borrowers can reduce the principal amount on which interest is calculated, leading to lower interest costs over time.

• Financial flexibility: Provides a safety net for emergencies and allows for easier access to funds for various financial needs.

• Improved cash flow management: Helps in managing cash flow more effectively by allowing withdrawals when necessary.

Considerations before opting for an access bond

While access bonds offer several advantages, there are considerations to keep in mind. The ease of accessing funds can be tempting, requiring disciplined financial management to avoid unnecessary withdrawals. Some banks may charge fees for withdrawals or maintaining the access bond facility. Additionally, it is crucial to ensure that the terms of the access bond align with your long-term financial goals and repayment capacity.

How to get an access bond

All major banks offer access bonds, which can be incorporated into your home loan in two main ways. First, you can request the access bond facility during home loan approval when your finance application is approved. Second, you can apply for the access bond facility post-registration after your bond has been registered. Additionally, it is possible to convert an existing normal bond into an access bond at any point during the term of your home loan, provided that your loan has been managed responsibly and you are not under debt review.

Access bonds offer South African homeowners a flexible and practical solution, granting greater financial control and effective cash flow management. If you're in the market for a new property, reach out to Knight Frank today. Our experts are dedicated to helping you find the home of your dreams.