No more easy access to extra cash
Before the National Credit Act (NCA) was introduced in 2007, it was common for banks to grant you an access facility on your bond that enabled you to withdraw money you had paid into your home loan account.
However, since the introduction of the NCA, banks are required to conduct an affordability test before they can advance you funds from your home loan.
Luthando Vutula, the managing executive of Absa Home Loans, says the bank will not have to assess your affordability if you want to withdraw funds you have paid into your mortgage bond over and above your normal monthly instalment.
But, Vutula says, you will not be able to access the difference between the outstanding balance and the original loan amount without undergoing a credit assessment. This means the bank will have to reexamine your expenses and income to determine if you can afford the revised monthly repayments.
For example, if you have a bond of R1 million with monthly repayments of R10 000 and you pay only the minimum amount each month, after a year the outstanding balance would be about R995 000, depending on the interest you are being charged. You would not be able to withdraw the difference of R5 000 without the bank first conducting an affordability assessment, even though you qualified for a bond of R1 million the previous year.
On the other hand, if you have a bond of R1 million with repayments of R10 000, and you pay in R12 000 each month, after a year you would be able to withdraw or access up R24 000 – the amount (R2 000 x 12) you paid in over and above your minimum monthly repayments.
You should bear in mind that the interest you are charged is calculated on the outstanding balance.
When you deposit additional funds into your home loan, the balance is reduced, and, for as long as the additional funds remain in your home loan, the interest calculated on the balance is also lower. The balance and hence the interest charged increase with any withdrawals you make, regardless of whether you are getting a re-advance on your loan or withdrawing additional funds you had paid into your home loan.