An access bond can be a useful and cheap source of funds
Only a small percentage of buyers can afford to pay cash for their homes, with most of them having to rely on home loans that can cost them up to 30% of their monthly income in repayments.
As a result, many people strive to pay off those loans as quickly as possible and be “bond free”, says Berry Everitt, chief executive of the Chas Everitt International property group. However, closing their home loan account completely is not necessarily the best course of action.
“Firstly, there is here is a strong likelihood that you will need to borrow money some time in the next few years to finance an education, a car, or even another property, and using your access bond to ‘reborrow’ some of your home equity is the cheapest way to do this.
“The interest charged on home loans is much lower than that on student or personal loans, car finance and credit card balances, and this is actually reason enough to keep your home loan account open, even if there is only a nominal amount owing.”
Another good reason is to avoid the situation in which you become “house rich and cash poor” – that is, when you owe nothing on your home any more but lack sufficient funds for the upkeep of the property, including rates and taxes, and insurance as well as routine maintenance.
“The longer you stay in your home, the more the value will increase and, once again, you can access some of that equity to maintain and improve it if you need to, provided your home loan account is still open.”
Meanwhile, those who are still using a large chunk of their disposable income to pay off a home loan can be sure this is one of the safest investments they could be making.
“Paying off your home loan or putting any additional cash into your home loan account is eliminating an expense that is not tax deductible, which is the same as making a tax-free investment.
“At the moment, the real rate of return on such an investment is at least 5.75%, with the inflation rate currently running at around 4% and the prime rate being 9.75%, but it could be more if the interest rate on your home loan is higher. This type of investment is a lot less stressful than many others.”