An access bond is a type of mortgage. It allows homeowners to borrow money against the equity in the home at any time. Homeowners are charged their mortgage interest rate when these funds are borrowed.
Home loan rates are generally lower than other consumer loan rates. A property owner can save money in interest payments by using an access bond. The additional fees that could be charged when taking out an additional loan, such as a home equity loan, can also be avoided in this way.
Some banks allow the homeowner to move additional funds in and out of the home loan account. This can save a property owner money on interest payments. When extra money is deposited into the home loan account, this lowers the amount of the outstanding mortgage. Since interest is calculated daily, every day the homeowner can leave these funds in the account, the interest payment for that day can be lowered.
Benefits of access bonds include having additional funds available whenever needed to cover expenses. These can include large costs, such as education or home improvements, or smaller, unexpected expenses, like car repairs. With an access bond, the homeowner may pay a lower interest rate than he would if he used a separate home equity loan to pay for such items.
There can be disadvantages to access bonds. Firstly, the property is used a collateral for any funds withdrawn from the bond. Also, the equity in the home will be lowered each time funds are withdrawn. This can be an issue if the home ever needs to be sold quickly.
Any money borrowed against the home’s equity must be paid back when it is sold. If property prices are low when the home must be sold, this could be a challenge for the homeowner. In such a case, it is possible that the homeowner would not make enough money on the sale to repay the access bond.
If a homeowner wants to have this kind of access to their home’s equity, he must usually apply for an access bond mortgage when he purchases the property. Some banks convert an existing, traditional mortgage into an access bond. Closing costs may apply in such a situation, as with other types of mortgage refinancing. These costs may include bank, insurance, and appraisal fees.
Although available in many places in the world, access bonds were most widely used in South Africa. Since the global economic downturn of the late 2000s, however, access bonds have been difficult to obtain. In a tough economy, banks are much more strict about approving credit applications, and access bonds are no exception.