Real Estate Investor Magazine South Africa June/ July 2019 | Page 41

FINANCE
Resist the urge to overuse
your mortgage facility
Overuse of the mortgage facility can result in unwanted additional costs
H
ome owners are urged not to over use their mortgage
these payments are paid over for the life of the loan, with
facility as it may result in an increase in monthly bond
interested added.
repayments along with additional costs involved, re-
SA Property.com advises that if debt consolidation is
sulting in an incurred and unmanageable bond repayment.
absolutely essential and there is enough available on the bond
Home owners with an accessible bond facility on their
to draw one large lump sum, i.e. the total of all the smaller
mortgage loan might often be tempted to borrow a small amount
debts, take the maximum amount but only do this once. He
against what they have paid off each
adds that using what was being
time as they may be cash-strapped,
repaid to service those smaller
are wanting to consolidate smaller
debts must be paid into the
debts or if they require the funds for
“In addition, you put your home at bond account as it will ‘quickly’
an item they would like to purchase
reduce the capital balance of the
risk if you can’t pay the mortgage loan and rebuilds home equity.
for their home. Managing Director
SA Property.com, Michael Bauer
Home owners are advised to
instalment each month, which
says that this is not advisable to access
resist the temptation of paying
and overuse these funds.
the minimum and to put as
is not a sensible move, as this
This method of accessing funds
much as possible into the bond
destabilizes
what
is
possibly
the
may be often suggested – due to
each month as it will help to pay
the high interest rates on credit
the bond off faster and save on
biggest
investment
you’ll
ever
cards and short term loans versus
interest paid. Bauer advises that
make,” said Bauer.
bond interest rates. Often many
all the ‘extras’ in the household
individuals will use this method to
have been paid back from store
‘borrow cash’. Unfortunately, this
credit, gym contracts, extra
may only offer short lived relief as
mobile packages to online
borrowing additional amounts will increase the monthly bond
entertainment packages.
repayment and might push it to the point of financial stress or
“Do ensure that you know what interest rate you’ll be
unaffordability.
paying on the new amount and what the full costs are before
“In addition, you put your home at risk if you can’t pay the
deciding to go this route and it would make sense to ask a
mortgage instalment each month, which is not a sensible move, bond originator to help negotiate the best rate possible. Bear
as this destabilizes what is possibly the biggest investment
in mind that interest rates on mortgages are linked to the
you’ll ever make,” said Bauer.
prime rate and can vary from bank to bank. Also remember
When borrowing from an access bond there are several
that refinancing short-term with your mortgage may free up
additional costs involved, including an additional valuation
cash flow, but it will add a lot in interest charges over the 20-
fee, registration fee and legal fees. These additional costs are
year lifespan of a bond,” says Bauer.
usually added to the home loan account if the application does
RESOURCES
not have the funds to pay for these costs upfront. Essentially,
SAProperty.com
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SA Real Estate Investor Magazine JUNE/JULY 2019
39