Access Bond Explained

A new type of bond has emerged over the past few years, called an access bond. Access bonds are now available at almost any bank. This type of bond treats your home loan very much like a savings account, but it provides a balance to your savings account that is equal to the equity of your home.

Really, access loans and traditional home loans are very similar. The big difference is that access accounts have a savings account component. The balance of that savings account reflects the equity you have in your home. Basically, all that means is the more your home is worth, the more money you will have in your access savings account. It’s important to understand though, that if you take the money out of this savings account, you are actually taking it out as a loan against the equity in your home.

In many respects, this offers consumers a unique type of money management opportunity. If you pay money into your home loan, on top of your normal installment, it not only allows you to pay off the home more quickly, but it also establishes a surplus that can be used for short-term loans. However, don’t forget that these funds must be paid back. You will pay them back at the same interest rate you have on your home loan. Really, the key thing to keep in mind is to only borrow what you can pay off in a comparatively short amount of time.

An access bond actually allows you to use the equity in your home loan. You can do this at any time, and you can use the money for whatever you need to. Generally, it is used for such things as short-term debt, a holiday, home renovations, or a new vehicle. In fact, if you purchase your next car through an access loan, it might be a very wise move. The interest rate you pay on a home loan is typically lower than the prime lending rate. However, car loans are usually higher than the prime lending rate. Consequently, borrowing on an access bond allows you to purchase your vehicle at the lower interest rate.

Student loans is something else people generally use these monies for. Once again, the home loan interest rate will be lower than the prime lending rate. Student loans are also set up so they milk out a larger interest charge. You cannot pay anything but interest until the student graduates. That can add up,. So, if you use these access bond account funds for a student loan, you can save a good deal of money over the long run.

There are advantages and disadvantages with access bonds, just as there are with all loans. It’s true they may have a lower interest rate, but access bonds also have a shorter repayment term. If you fail to meet that term, you could end up paying far more in interest than you would have paid with a traditional bond. It’s also important to keep mind that you are borrowing against your home. If you cannot repay the loan, then the bank can and will repossess your property.

Susan Reynolds is a content coordinator for a leading South African bond originator. For more information visit: http://www.bondcredit.co.za/