How to Access Equity in Your Home: Further Loans and Bond Switches Explained

If you have owned your property for five or more years and made consistent bond repayments, you likely have meaningful equity you can access. The cheapest way is a re-advance. The most powerful for a better rate is a bond switch. Use equity for purposes that build wealth, not for consumption.

Many South African property owners do not realise how much equity they have built up over the years of paying their bond. This equity, the difference between what your property is worth and what you still owe, can be accessed to fund renovations, consolidate debt or invest in a second property. There are three main ways to do it.

What Is Home Equity?

If you bought a property for R1 million five years ago and your bond balance is now R880,000, and the property is currently worth R1.25 million, your equity is R370,000. This is the portion of the property you effectively own outright.

Banks will typically lend up to 80% to 90% of the current market value of your property, less the existing bond. So on a property worth R1.25 million with a remaining bond of R880,000, you may be able to access up to R245,000 through a further loan.

Option 1: Re-Advance

If you have paid money into your bond above the minimum required repayments, some banks allow you to re-advance those funds without a new credit application. This is the fastest and cheapest option.

For example, if your original bond was R1 million and your current balance is R870,000, but you have made extra payments totalling R80,000, you may be able to re-advance up to R80,000. Check your bond agreement and contact your bank to see if this facility is available.

Option 2: Further Loan

A further loan, also called a further advance, is a new application to borrow additional money secured against your existing property. The bank reassesses your current property value, your credit profile and your affordability. If approved, the further loan is registered at the Deeds Office as an additional bond over the property.

Further loans are typically priced at the prime rate or close to it, making them significantly cheaper than personal loans or credit cards. There are registration costs involved, including a new bond registration fee.

Good uses for a further loan include:

• Major home renovations that add value to the property
• Debt consolidation to replace high-interest personal loans at a lower rate
• A deposit for a second investment property

Option 3: Bond Switch

A bond switch means moving your entire home loan from your current bank to a new bank. The motivation is usually a better interest rate.

If your current bank is charging prime plus 0.5% and a competing bank offers prime minus 0.25%, the difference on a R900,000 remaining balance over the remaining term could save tens of thousands of rands.

A bond switch involves registering a new bond with the new bank and cancelling the old one. There are costs: bond registration fees for the new bond and a bond cancellation fee for the old one. The interest saving must outweigh these costs over the remaining term for the switch to make financial sense.

We can model this for you and tell you whether a switch is worthwhile based on your specific numbers.

When Does It Make Sense to Access Equity?

Accessing home equity makes sense when:

• You use it for renovations that increase your property value
• You consolidate high-interest debt at a materially lower rate
• You fund a deposit for a second income-producing property
• The cost of the further loan is lower than any alternative source of finance

It does not make sense when you use long-term secured debt to fund short-term spending such as holidays, vehicles or consumption.

We Can Help

Whether you are considering a further loan, a re-advance or a bond switch, we assess your options across multiple banks and give you an honest view of what is available and what it will cost.

WhatsApp Melinda to discuss your options, or use our bond repayment calculator to model different scenarios.

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