Clients often ask me: “Liz, what is this access facility I’ve heard about?”
My short answer is:
An “Accessbond” (the name used by Standard Bank) is a home loan facility offered by major banks which enables you to pay extra funds into your home loan account (over and above the required minimum monthly repayment) thus reducing the interest charges and the term of the bond. This facility, however, also provides you with easy access to these “PREPAID” funds via Internet, Telephone or Cellphone banking or at the bank’s ATM network. For instance: if your monthly bond installment is R5 000 and you decide to pay R6 000 per month, your “prepaid” amount is R1 000 and you have ACCESS to these funds allowing you to withdraw them again if you need them.
And now for the long answer…
As a further example:
– Let’s say that you have a bond of R500 000.
– The required minimum monthly bond repayment will be R4 825 p.m.
– Instead of the minimum you pay R5 825 p.m. (i.e. R1 000 extra)
As soon as you pay the R1 000 extra into your bond account, your balance will be R499 000. Remember that interest charged on a home loan is calculated on the daily balance (for more about interest and quickly paying of your loan click here).
Now the repayment will be calculated on the outstanding balance (R499 000) and the repayment necessary will be reduced by R10 to R4 815 p.m. But the Banks will not automatically reduce your installment and you still pay that initial required minimum monthly installment based on the original R500 000. Your installment only changes if the Reserve Bank repo rate changes or if you specifically request a recalculation from the bank.
The difference between your initial minimum payment and the amount calculated on the daily balance (that R10) continues to accumulate, reducing your balance and becoming available for withdrawal from your access facility if required.
Again: The monthly installment amount will NOT change if you deposit extra funds into your home loan account, i.e. the installment remains constant throughout the term of the bond.
What about recalculating that minimum repayment amount?
The bank will recalculate the monthly installment only if the customer requests it, but if the monthly installment is reduced in line with the outstanding capital balance you will no longer be able to electronically access your pre-paid funds via the “accessbond” facility and if you need the funds you will have to apply for a “re-advance” on your bond account.
A “re-advance” does not cost you anything but your interest rate may change, and the bank will carry out an affordability assessment to determine whether or not you can afford the repayments on the original loan amount. (This means that you will have to complete a “re-advance” application form and provide the bank with fresh proof-of-income etc!)
Different names, same facility.
Terms and Conditions apply to the “accessbond” facility and differs from bank to bank. Each bank also has its own name for an “accessbond”, i.e.
ABSA : Flexi-reserve(Advance portion)
FIRST NATIONAL BANK : Flexi Bond option
NEDBANK : Nedrevolve
STANDARD BANK : Accessbond
Banks generally require you to apply for the access facility by signing an application form at the same time as you sign the Mortgage Loan Agreement at the Bond Registration attorneys. I am a Standard Bank client and from personal experience know that you can only apply for their accessbond facility after your bond has registered. You can apply at any branch OR by telephoning the bank’s Customer Care line. In order to utilise your access facility electronically it is necessary for your home loan account to be linked to another (preferably cheque) account in your name at the same bank.
A final thought:
An Accessbond facility is attractive not only because it enables you to pay off your home loan before the loan term expires – and in so doing saving you thousands of rand in interest – but it also gives you access at any time to your pre-paid funds if, when and as you want it … and you can use the money as you please!