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How does my access bond work?

by | Nov 4, 2020

How does my access bond work?If you are confused about the effects of depositing extra funds into your home loan, you are not alone. During lockdown, many people looked into their finance agreements, which resulted in a lot of queries about what happens when you pay an additional amount into a home loan.

For most people, their home loan is structured as an access bond, which means when you pay in extra money, it reduces the interest you pay on your mortgage but also leaves funds available for you to withdraw. Some families use this facility to save up to pay their annual school fees as a lump sum, for example, but for many people, they just want to pay in extra to settle their home loan sooner.

Many people are unclear as to how amortisation works and how these additional payments are used to reduce their home loan. It is important to understand how your mortgage provider treats additional payments.

Lower monthly instalment

In the case where your additional contributions, or prepaid funds, result in a reduction of your monthly bond instalment, the period of the loan remains the same. In order to ensure that the outstanding balance as well as the funds available for withdrawal are both zero at the end of the term, the prepaid funds will reduce by the capital portion not covered by the lower instalment being paid. You will still be able to withdraw available funds, but they will reduce over time as you are taking this benefit in a lower monthly instalment.

Monthly instalment remains the same

In the case where your additional contributions or prepaid funds do not reduce the monthly bond instalment, which remains the same as the initial agreement, you will pay off the loan sooner if you do not access those additional funds.

Any pre-payment is automatically used to reduce the outstanding balance of your home loan and you only pay interest on the money you owe the bank. This means that the percentage of your instalment that goes to interest is lower so the amount going to repay the capital is higher.

For example, if you had a home loan of R1 million with a 7% interest rate, you would pay around R7 800 as a minimum instalment to ensure it is paid off within 20 years.

If you put in a lump sum pre-payment of R200 000, you reduce the outstanding balance to R800 000 and you only pay interest on R800 000. That means the interest portion of your instalment drops from R5 800 to R4 700.

Prior to the advance payment, R5 800 of your R7 800 instalment was going to interest and only R2 000 to capital. Due to the R200 000 pre-payment, only R4 700 is now going to interest so that means R3 100 is going to capital. With more of the instalment going to capital, you pay off your home loan sooner.

Table interest and capital portions of repayment

However, if you needed to access that R200 000, you could withdraw it, but it would then increase your outstanding balance and the interest portion of your instalment would increase whilst the capital repayment amount deceases.

Think of a credit card or store card. You have an outstanding balance (money you have spent) and available balance (credit available). You only pay interest on the outstanding balance not the total credit available.

What has created confusion is that the credit available on your home loan reduces in line with the amortisation curve so that on a 20-year home loan, in month 241 the credit limit reaches zero.

Basically, credit you use will have to be paid off in the number of months left on the term of the loan. This is calculated based on your minimum instalment as per your home loan agreement.

Can I ask the bank to capitalise my additional funds and reduce my home loan?

Mfundo Mabaso, head of home finance at FNB says at any point you can ask the bank to reduce the available credit on your home loan facility. You keep the original instalment and ask them to shorten the period of the home loan.

It is important to note that there is no financial benefit to doing this other than providing discipline to not access those available funds in the future. If you did not ask for the home loan facility to be reduced, but never drew down on the additional funds, you would still pay off your home loan over the same period as if you asked them to shorten it. It is the same net effect.

If I pay off my home loan sooner, can I keep my access bond?

If you simply leave the additional funds in your home loan account, once you reached a point where the advance payments equal the outstanding home loan, you would not be charged any more interest and you would no longer pay an instalment other than the monthly service fee of R69. Think of this as having used additional payments to settle your mortgage but that you have a credit facility with your home as security.

Using the example of the amortisation curve on a R1 million mortgage over 20 years, in month 142 (nearly 12 years) your outstanding mortgage is R600 000. You get a surprise windfall which you use to pay in R600 000 and effectively settle the bond. You could either at this point make the home loan facility paid up and remove the mortgage over your property or you could leave the home loan facility as a credit facility. You will only pay interest on this facility if you draw down from it.

As Steven Barker, head of lending at Standard Bank explains, you still have a credit agreement (home loan) which gives you access to credit of R600 000, but that reduces each month according to the amortisation curve. So, in month 213 your credit facility has reduced to R206 000 and by month 241 it is zero.

Barker says the reason the banks do this is because they don’t want someone one month before the home loan contract ends suddenly accessing the original home loan amount as credit because they would have to fully settle it the following month (although some banks like Investec do allow for this).

Note that it does not make sense to put more money into your access bond than you owe on it as you do not earn additional interest on this.  If you have reached this point, rather put the extra money into an interest-bearing account.

If I have paid additional funds into my bond, can I access the full amount?

This depends on how your specific facility works. If the bank has reduced your instalments, then your available funds will reduce each month. If you maintain your original instalments, then the pre-paid funds remain available.

What is amortisation?

An amortisation schedule is a complete table of periodic loan payments, showing the amount of capital and the amount of interest that each payment is made up of, until the loan is paid off. Each payment is the same amount in total for each period. However, early in the schedule, the majority of each payment is what is owed in interest; later in the schedule, the majority of each payment covers the loan’s principal. In an amortisation schedule, the percentage of each payment that goes toward interest diminishes a bit with each payment and the percentage that goes toward principal increases.  Investopedia.com

 An example of an amortisation table on R1 million over 20 years

Note: Only after ten years (120 months) is the interest portion of the instalment lower than the capital portion.

Overview of banks’ access bond offerings

Speak to your bank to ensure you understand exactly how the access bond works and what funds remain available.

Absa

FlexiReserve allows customers to access funds that they have already paid over and above the minimum monthly payment on their home loan, i.e. additional funds that are over and above the minimum required monthly payment on their loan. Additional funds paid in will not automatically lower your monthly repayment, unless you capitalise the extra amount paid in advance and ask the bank to recalculate your repayment.

FNB

FNB’s Flexi Option provides the ability to deposit surplus funds and further allows electronic access to these funds 24 hours a day. Monthly instalments remain the same throughout the term of the loan so surplus deposits remain available.

Nedbank

The NedRevolve facility on the Nedbank home loan enables clients to access any surplus funds that accumulate over time when they pay more than the minimum instalment or a lump sum into their home loan account. Any additional funds deposited can be withdrawn whenever the customer needs them. The monthly instalment does adjust and is recalculated monthly where additional funds have been paid in.

Standard Bank

Access Bond link option 1: The instalment will not reduce when funds are prepaid into the account but will result in the loan being paid off quicker if additional funds are not accessed, saving the customer interest. You are able to access all your pre-paid funds.

Access Bond link option 2: The instalment will reduce when funds are prepaid into the account, resulting in the term of the loan remaining the same. You will still be able to withdraw available funds but they will reduce over time as you are taking this benefit in a lower monthly instalment.

This article first appeared in City Press.

60 Comments

  1. Hi Maya

    Thanks for an informative piece. I have a bond with ABSA, and I increased my bond repayment amount and dumped any extra funds into the bond account. Now, the outstanding bond amount is equal (almost) to the funds in flexi-reserve.
    What will happen now? Will the bank just charge me R69 per month for the accounts, and will the flexi amount become less?
    Is there any reason not to just capitalise the flexi amount? It is a nice thought that I have an amount available in case of an emergency, though.

    Reply
    • Best to speak to the bank about your options. It can be a good idea to keep the facility open – it is a more cost effective credit option

      Reply
  2. Maya. Please advice. My FNB home loan is 15 years and I have a balance of R70 000 and about R432 000 in my access account. Why can’t I just pay off my house with the money in my access account?

    Reply
    • Best to check with FNB because you may be misreading the statement. Check if it that the outstanding balance is R70k + R432K = R502K. Of that R432K is accessible. If the case is that the actual outstanding balance is R70k then you can settle and close the account.

      Reply
  3. Hi Maya , this is a bit of a long story but I cant get the bank to explain whats going on.

    I have had a hard time with standard bank, during my bond , build and access bond.

    I have a bond , that started as a build bond that covered the land and build. This moves into a home loan on completion of the property is the way I understand it . The loan was roughly 2mil

    I drew down 1 950000 , completed the build yet was not able to complete the final draw down of 50K, due to a delay getting the occupation certificate for the property.

    In the time i was waiting for the occupation certificate , standard bank said the home was complete (even though they refused to release the funds) I opened up the access bond facility .

    Later when the funds were available and I drew down the 50k, put it straight back into the loan account so the funds would be available in the access bond facility along with my monthly debit order. (as per the banks recommendation)

    Post this my access facility went went from around 70k to 0 , I called the bank and i was advised the access facility goes inactive if i don’t draw down from it every 3 months and that why it went to 0 . So i reactivated it , and the amount available has decreased drastically to 57k as I had overserved the bond during the build. I would have thought it would have increased not decreased.

    Please could you offer some in site ? It feels like this money has vanished and i cant see any statements to show my access bond history ..

    Thank you

    Reply
    • This sounds complicated and probably to do with the way Standard Bank mortgages work – which is not like other banks. Best to drop me an email and I can get someone to look into it

      Reply
  4. Hi Maya,

    Thanks for this super useful information.

    I have an access bond with FNB. We’ve put about a third of the outstanding bond amount in to our access bond to keep money for a renovation, and it seems that that money is earning interest. I.e. we’re seeing a few extra thousand Rands reflecting every month. Is this “interest” also accessible to us? I was under the impression that we could only access the exact excess amount contributed, and that our excess contributions only decreased the total amount owed. I.e. we’ve put in R200 000, and we can take our R200 000 – even if it says there is R205 000 available to us?

    Thanks in advance!

    Reply
      • Thank you!

        Reply
      • Hi Maya. Just came across this article. Couldn’t deduce from this, whether is best to save for annual school fees in the access bond or interest bearing account. What is best.

        Reply
        • There is no right or wrong answer. Do what works best for you. Some people like to keep their bond repayments separate from other financial goals and then it would be better for them to use a savings account. Technically you do save more interest by paying extra into your mortgage but it is not that significant.

          Reply
      • Maya. Did you get feedback on this query?

        Reply
        • I got so many questions 🙂 which one are you referring to?

          Reply
  5. Hi Maya

    I havea standard bank access bond on option 1 but was curious to understand what would happen if I convert this to option 2 and pay the full amount off… How much will I be able to access given my term is technically 20 years.

    Reply
    • I am interviewing the head of Standard Bank home loans to get clarity on this. Watch this space..

      Reply
  6. Hello , I have an Access bond with Absa. I am paying extra but it is not making a difference to my term-currently. I would like all my payments to go towards capital because my aim is to finish the bond as fast as I can. How do I implement this ?

    Reply
    • I have sent your query to Absa but there are two things to check. Firstly, make sure your installment has not been reduced. The term can only reduce if you keep the installment the same (in fact your installment should be increasing due to higher interest rates). The bank may not reflect a reduced term simply because the loan agreement is a set term (that means you can still withdraw the additional amounts if you chose to) – however the extra payments would mean you would settle earlier.

      Reply
  7. Hi, I created an access bond with standard bank and chose Link 1. They deducted my bond activation fee of R6000 with the first bit of money I added and I still can’t access the additional funds I’ve put in. When queried they said that in order to access the extra R1000 I had added I need to consent to my monthly repayment going up by another R300. I don’t understand why my monthly repayment needs to go up with a surplus in my access bond? Also, should they activation fee not have gone off when I started my home loan?

    My intention with creating an access bond was to use it instead of my short term savings account while reducing the interest I pay on my home loan. Do I have the wrong idea here?

    Reply
    • I understand exactly what you are doing as we do the same thing with our mortgage (not with Standard Bank). Standard Bank’s access bond is very confusing and I am getting a lot of queries about this. I will be speaking with them to get a better explanation.

      Reply
  8. Good day, I have bond with standard bank, I’m surprised since from February to date, SEPT 2022 the instalment is going up every month. Does that mean that the interest rate goes up every month?

    Reply
    • Yes! You would actually experience an increase each month even though interest rates have been increased every second month this year. Interest is calculated daily, so if the rate increase is announced on the 20th of the month, the interest on the last ten days of the month would be higher. This would reflect in a slightly higher installment. Then for the following month, the new interest rate would be calculated on the full 30 days of the month. So your mortgage would increase again. A bit confusing, but basically we are in a rising interest rate cycle and debt is becoming more expensive!

      Reply
  9. HI there. I have an access bond with FNB. Facility is 1 million with 118 months remaining. I have been putting additional funds into my access facility to save on the interest however my question is in terms of the amort schedule at what stage will the bank start reducing access to my access funds? How do i calculate when that will happen to avoid them reducing the funds in my access facility at any stage during the remaining term of the facility?

    Reply
    • It is a complicated calculation – best to ask them for those figures. But if you have not been reducing your installments then technically those additional repayments remain accessible. What will happen is that at some point before the loan term ends, your pre-payments will match the outstanding balance. At that point you need to decide what to do with those funds – to either withdraw or settle the mortgage.

      Reply
  10. I’ve just taken out a bond with Standard Bank. Trying to decide between the Option 1 (reduce term) and the Option 2 (reduce monthly instalment) on the access bond. No one can give me a straight answer at Standard Bank, and they won’t provide any comparative amortisation schedules. My question basically is: which one will save the MOST interest over the whole term, if I commit to paying R20k a month – which is more than the initial installment (even if the bond instalment is less or reduced)… which will I save more interest on over the term? Or is it not much difference? Option 1 or 2. Do most people go for option 2 (to reduce monthly instalments) and then just keep paying the maximum they can afford even if it is reduced? Or should I rather go for option 1 (to reduce term even if it puts pressure to keep up the higher monthlies) to save the most interest?

    Reply
    • Technically it should not make a difference if you are adding in extra each month – all additional payments above interest goes to capital.
      Interest is calculated only on the outstanding balance.
      It’s an interesting debate and maybe I will do a podcast with Standard Bank’s home loan person to unpack it. My feeling would be to go with option 2 and just keep paying in more. That will give you more flexibility if for some reason you could not make a payment one month

      Reply
      • I just saw this comment and I feel exactly the same. I’ve been having a really hard time with Standard Bank. They could not explain these two options for me in simple terms. I still don’t know which option will be best as no one could explain it to me…

        Reply
  11. Good day, i have bond with standard bank and i owe 300k i have 300k available however need to buy land with it, would you advise i pay to the bond for sake of interest and withdraw when i buy the land next year

    Reply
    • If you have an access bond then that would make sense. Just keep the bond facility available. Also note, however, that the credit facility will reduce in line with the agreed repayment period – so your full R300 000 may not be available

      Reply
  12. Hi Maya,

    I have an access bond with Standard bank and they don’t show the full amount I have put into my access bond. They show way less than I have been putting into it. Is that normal?

    Reply
    • You need to ask them for full details and see if your additional payments have been captured

      Reply
    • Hellow, I also use Standard bank & have a access bond linked. It shows after 10- 11 days of paying extra. I hope this help.

      Reply
      • Correct

        10 days with Std bank

        Instant with FNB

        Reply
      • Can you switch your bond with Standardbank after 10 years to a acsess bond to withdraw the acsess fonds which is available. Whats is the proses and how long will it take to do so

        Reply
        • I discussed this with Standard Bank and they recommend that you rather apply for a readvance on your existing loan. This allows you to access your pre-paid funds without having to change your mortgage. Keep in mind that this will increase your monthly installment as your outstanding balance will increase.

          Reply
  13. I have recently taken a bond with Standard Bank, however I am confused as my repayment changes every month. I am aware that there will be changes when the interest rate changes.

    Is this normal?

    Reply
    • I am getting a lot of queries about Standard Bank home loans! Are you paying in extra to the mortgage? Depending on your agreement that could be lowering your installment? Or is it going up?

      Reply
      • I have an access bond account in place, however I have not made any extra payments as yet.

        My bond is fairly new as my first repayment was in January 2022.

        There was a small increase in February 2022, however my repayment for March 2022 has increased by R41.69.

        I have sent an enquiry to Standard Bank, and I am awaiting feedback.

        Reply
        • I can explain 😊
          Interest rates increased late January so a pro-rata increase would have applied to the last few days of your mortgage in January (affecting February).
          The full impact of the rate increase would be seen on your March installment (for February)
          Does that make sense?

          Reply
          • Thank you so much, I do understand now.

            Reply
      • Std bank system is just too complicated to understand . That’s why people are confused .

        There are
        too many process and restrictions . Just to register an access bond you need to go to the branch and spend the whole in the branch. It come already available with FNB .

        Std bank system is not user friendly.

        Reply
  14. Hi
    I have a Bond with Standard bank and it’s been 10years, is it possible to take loan from my bond (i.e 150K) even if I don’t have access bond account.

    Reply
    • You would need to apply for a further advance. Best to speak to Standard Bank regarding your options

      Reply
  15. How can I extend my access bond facility at Standard bank at the end of the 20 year term. Is only option an additional loan ?

    Reply
    • yes, you would need to ask Standard Bank – they probably due further advances but it would come with costs etc

      Reply
  16. Good day Maya

    When did Standard Bank introduce the 2 options of Access bonds?

    Reply
      • Hi Maya can I buy second house cash using my access bond? What effect will that have on the interest?

        Reply
        • It is a good idea to use the same bank and speak to them about it. You can make a withdrawal from your access bond, but you will then have a higher repayment and obviously that will include interest. If you are buying a property to rent, it is best to have the mortgage on the rental property because you can deduct the interest from rent received when it comes to paying tax

          Reply
  17. If I pay a lumpsum into my FNB Home Loan that does not have a Flexi Option can the Bank refuse access to the funds if I am on Debt Review. Funds was a lumpsum received for Medical Condition. When lumpsum was paid over I was already on Debt Review. Home Loan was not part of the Debt Review process.

    Reply
    • It’s a bit more complicated. If the bank has already allocated the pre-payment to the outstanding balance and adjusted your repayments accordingly then you would not be able to access them.

      Reply
      • If I have settled my home loan, and access the FNB prepaid option request (Access Funds). Will I be required to pay it back?

        Reply
        • Not sure I understand the question. If you do not have an outstanding balance then you do not owe money, but if you pull on the credit facility then you will have repayments.

          Reply
  18. So ideally, If I can push all my monies into my access bond where instalment does not reduce and lets I pay up my bond in 2 to 3 years. I can leave the account open and use it as my only credit facility instead? e.g. I can buy a car cash and benefit from the low interest and pay it off as if I’m paying off a bond

    Reply
    • Correct, although I would recommend you pay back the monthly amount you would have paid on ordinary car finance in order to pay it off over a shorter period of time. Otherwise the amount of interest you pay gets quickly big if you try finance over a long time

      Reply
  19. With you Maya and your team, i will never go wrong. thanks for the info

    Reply
  20. Great to learn more about bonds and what banks offer

    Reply

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Maya Fisher-French author of Money Questions Answered

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