If you’ve researched home loans, or applied for a home loan, you may have heard of an “Accessbond” or an “access facility” but may not be clear on exactly what it is or how you would benefit from having it. In this post we’ll try to fill in the blanks about the value of this powerful tool.
But before we begin we need to grapple with some basics of home loans first:
When purchasing a residential property, you can apply for a home loan (mortgage bond) to finance the purchase of such property. If approved, the home loan must be registered at the Deeds Office. On date of registration the bank pays out the loan in a lump sum to the transfer attorney who pays it over to the seller. You are then expected to repay this home loan AND the interest thereon in minimum monthly instalments over 20, 25 or 30 years. Pretty straightforward, right?
But what you may not know is the following:
- Interest is calculated daily on the outstanding balance of that original lump sum (this is called the capital amount). If you stick to the minimum monthly repayments required by the bank, those payments for roughly the first third of your your loan term, will first be used to pay off the interest before significantly reducing the capital amount owed.
- The loan term (the time it takes to repay the loan) is not set in stone. It simply reflects the maximum period you have to repay the loan.
- Any amount you pay into your home loan account over-and-above the required minimum monthly repayment will be used to reduce the capital amount, which in turn reduces the loan repayment term.
- Any extra money you pay into your home loan account is therefore a great way of reducing the overall cost and term of the loan (read more about this here).
But wait! There’s more to it…
Reducing your capital amount with extra money is a fantastic idea but can often feel like you’re just throwing that cash into a black hole. This is because even though you’re reducing the capital amount and saving a fortune in interest, you are still out of pocket by that extra amount. This is where the access facility comes in.
Most banks offer home loan clients an “access” facility which enables you to pay extra funds into your home loan account over and above the required minimum monthly instalments while retaining access (hence the name “Accessbond” introduced at Standard Bank) to those extra funds.
This means you benefit from reducing the capital amount (and reducing the interest), but by retaining “access” to that extra cash you contributed you can withdraw the money as you see fit. This makes your home loan something like a savings account, except that instead of earning interest (making money) you are reducing costs (saving money). It also gives you flexibility should you wish to make a big purchase or if you are faced with emergencies or unforeseen expenses.
If you do not have an access facility and you pay a lump sum into your bond account, such pre-paid funds will not be available for withdrawal as the additional funds will be used to reduce the monthly repayment. After the lump-sum amount has been paid into the bond account you will have to request the bank to reduce your monthly repayments accordingly.
Like a savings account you will be able to transfer funds electronically from your home loan account to your nominated cheque account at the same bank via Internet, telephone/cellphone Banking, or at the bank’s ATM network.
Each bank has a different name for this facility, for example:
STANDARD BANK: ACCESSBOND
ABSA: FLEXIRESERVE – ADVANCE PAYMENT OPTION
FIRST NATIONAL BANK: FLEXIBOND OPTION
How do you get an Access facility?
Access facility applications are subject to prevailing lending criteria at the time of application. The National Credit Act stipulates that the bank must provide the customer with the opportunity to pre-pay into the home loan account and to receive the interest benefit of such prepayment from the date the payment is made. Access to such pre-paid funds is, however, at the discretion of the bank.
Nedbank, FNB and ABSA (and if the client is eligible) will indicate on the Final Bond Approval whether the access facility is being offered. The client must then indicate if they are taking up this offer.
At Standard Bank, an ACCESSBOND facility is not automatically granted on approval of the home loan. The client is, however, entitled to apply for an Accessbond-Link facility immediately after registration of the bond by contacting the bank’s Call Centre.
All Access facility applications are required to have a debit order loaded on a transactional account at the same bank. This is to ensure that the customer’s instalment is adequately adjusted by the bank when there are:
withdrawals or an increase in the prime interest rate and prevents the customer from “under-paying” and subsequently going into arrears.
Note: If you do not wish to open a transactional account at the bank where you have placed your bond, you can still have access to any pre-paid (advance) funds in your bond account, but you will have to call in at a branch of the bank and request transfer of the prepaid amount out of your bond account into the account of your choice at another bank, i.e. you will not have electronic access to your prepaid funds.)
Access facility tips:
1) Recalculate those repayments!
If you have an access facility and you reduce the capital balance on your bond considerably in one lump sum you should request the bank to RECALCULATE your monthly instalments.
Your required minimum monthly repayment will then be calculated on the outstanding balance.
As you draw funds out of the access facility the bank will again increase the instalment automatically to ensure that your home loan account does not go into arrears.
2) Use the access facility frequently
You will need to use the access facility on a regular basis to retain the facility (i.e. pay some extra funds into your bond account and then withdraw such funds again at least once in every six-month period.) If you have not used the facility for six months or more, the bank can (and will) automatically remove your access facility!