Access bonds have different rules so it is important to understand how yours works.
Last month Standard Bank customers received notification that they could choose between two different types of access bonds. While this caused some confusion, it highlighted that most people don’t really understand how their access bond works and how to maximise its benefit.
Most people use an access bond as a place to store extra money: by paying in more than the required montly repayment amount, the interest you pay on your mortgage is reduced, but the access facility means that these excess funds are available for you to withdraw if needed. So, for example, some families use this facility to save up to pay their annual school fees as a lump sum.
Andrew van der Hoven, head of Home Loans at Standard Bank, says the bank found that in this scenario, people were not always clear on how amortisation works and how much of those additional payments translated into a withdrawal facility. Depending on how your monthly repayments are calculated, the additional payments may not be fully available for withdrawal and your mortgage period may not be shortened.
Lower monthly instalments
In the case where your additional contributions result in a reduction of your monthly bond instalment, the term of the loan remains the same. Although you are not paying off your mortgage any sooner, you do save interest, as interest would be calculated on a lower outstanding balance.
Paying a lower monthly bond instalment, however, means that a portion of your additional contribution will fund the capital part of the mortgage not covered by the lower instalment. 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. For example, if you made an additional payment of R100 000 into your R1 million loan in year five (60 months), after a year the available balance you could withdraw would have reduced to R96 968.
Monthly instalments remain the same
In the case where your additional contributions do not reduce the monthly bond instalment, which remains the same as in the initial agreement, you will pay off the loan sooner if you do not access those additional funds. The amount available for you to access will grow each month as you will be paying off more capital. In the same scenario of a R100 000 deposit in year five, after a year, the available balance you could withdraw would have increased to R110 471.
Standard Bank has provided for two different types of access bonds where a customer can decide whether their goal is to pay off the loan sooner and save, or if they want to use the additional contribution to reduce their monthly repayment while still having a portion of those additional funds as funds to access.
Standard Bank allows customers to switch between these options once a month, however, van der Hover says that most existing customers have gone for the second option ‒ lowering their instalments ‒ which could be a sign of that households are getting more stressed and need to manage their monthly cashflow.
The two different payment options provide a great illustration to understand how your access bond works. Note that if your bank automatically reduces the monthly bond instalment after an additional contribution, you will have to top this up each month to the original instalment in order to pay off your loan sooner.
Keeping the credit line open
The original access bond was introduced in the early 2000s and allowed a customer to borrow up to their original credit facility right until the end of the term.
For example, if you had applied for a R1 million mortgage against your home and had paid it off, in month 239 technically you would be able to borrow the full credit facility of R1 million. People used this as a cheaper way to access finance, especially for cars.
Most people think access bonds still operate in this manner, but most banks have changed their offering. Van der Hoven says the problem was that customers did not always understand the implications of this withdrawal, incorrectly believing that they would just pay the regular monthly instalment.
In reality they would have to pay back the full withdrawal within the amount of time left on the loan agreement. So, in the case of a withdrawal of R1 million in month 239, the full R1 million would have to be repaid the next month (month 240) as that was the end of the term of the loan.
If you still have an access bond that allows you to borrow up to the initial credit facility, understand the implications of using that credit limit. Any credit you use will have to be paid off in the number of months left on the term of the loan.
Most banks now require you to reapply for the original loan amount as a re-advance, and undergo an affordability test to ensure you can afford the monthly repayments. You can also elect a new period for the loan.
Overview of banks’ access bond offerings
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 contribute a lump sum into their home loan account. Any additional funds deposited can be withdrawn whenever the customer wants. The monthly instalment does get adjusted and is recalculated monthly where additional funds have been paid in.
Standard Bank
As described above, there are two options:
- 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 more quickly if additional funds are not accessed, saving the customer interest. The amount available for you to access will grow each month as you will be paying off more capital.
- Access Bond link option 2:Â 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 that amount will reduce over time as you are taking this benefit in a lower monthly instalment.
This article first appeared in City Press.
Hi Maya,
My husband and I have an access bond with Standard Bank. When we opened it we were automically given option 2. We are trying to pay it off as fast as possible and are putting in extra each month so that we are paying what we would pay with Option 1, while adding in any extra cash on top of that. If we get to the point where we can close it early and do so, will we have paid any more, or less, interest than if we’d had an Option 1 bond?
Thanks!
Technically it should not make a difference. Any amount that you pay over and above the interest goes straight to paying the capital
Hi Maya, I once read somewhere that paying the extra payment into your bond atleast 2-3 days after your normal monthly bond installments is more beneficial, how true is this? I want to add R500 to my bond repayments & I get paid on the 27th and that’s when I my bond installments get debited, would it be more beneficial for to pay this R500 on the 30th of every month separately? Or it works out the same even if I add it directly on to the R6000 I’m currently paying for my bond?
Actually it works out better to do it the same day as your bond installment. So just increase your installment to R6500
Hi Maya. My mom had a ABSA Flexi bond of R330000. She got a 2nd bond of R150000. Her new bond was R488000 including fees. She was advised to prepay the loan amount into her bond and she could draw as she needs. She used roughly R100000 of the loan over 12 months. I had a look at her yearly bank statement and was shocked to find they added R100000 to her bond which is now R608000. They added the loan twice and there is no loan balance left which should be roughly R40000. We have been battling for years for with Absa to rectify this problem. Now they are forcing her to sell because she can’t afford the new instalment. PLEASE HELP.
We will get Absa to investigate
Hi
I have a 15 years bond with StandardBank. I’m now left with 6 months of the contract term. I have never withdrawn from my access bond even though the interest rate dropped over the period.
What will happen to this amount after 6 months?
Best to ask them
Use ul information indeed
Hi Bonza
Kindly advise what happened to your situation, were you able to withdraw the money from your access bond
Hi Maya
I have flexi reserve with ABSA. Is it possible to reduce terms instead of capitalizing?
What do you mean by reduce terms? Do you want to shorten the period of the loan or reduce the installment?
Hi, I hope you can help – Standard bank housing loan. I was always able to access the money I had paid in to my bond, I’m now paying an extra R1000 on top of the monthly installment. Up until several months ago, my standard bank app reflects that I have access to zero money even tough I’ve paid off R17000. Why can’t I get access to my funds. I spent 30 mins on the phone this morning with standard bank HL dpt, put me on hold for 80% of the time. They just said you have no available funds. But i should have because I’ve been paying in extra and it reflects as R17000 paid off. Access to my money has been taken away from me. They say I must apply for a readvance? help.
Send me an email with your account details and I will forward to Standard Bank. It could be a system glitch due to the payment holiday programme. It seems to have thrown up all sorts of issues!
Hi Maya I wanted to activate the access bond with standard bank . I was told that if I withdraw the additional money i would have paid into access bond i will have to pay it back with interest.
So does this mean the money in the access bond is the bank’s? I thought this would work much like a savings account.
Please assist on how is this so?
An access bond allows you to pay in money over and above your installments due. As you have put in extra money it reduces the rand value of the interest you pay as the interest is now charged on a lower amount. For example 10% on R500 000 would be R50 000 but if you paid in R100 000 and reduced the balance to R400 000 then the interest is 10% on R400 000 – so R40 000. If you then draw down that extra R100 000 you had paid in, your outstanding balance goes back up to R500 000, so your interest goes up to R50 000.
Another thing to keep in mind, if you have put in extra and your monthly installment reduces, then a portion of the extra money you put in is going to the repayment – so the amount that remains accessible reduces. The best way to use the access bond is to maintain the original installment so that all the extra money you put in remains available. Does this explain it?
Hi Maya
My goal is to squash my bond but be able to access the money.
What is the best option to do this as it doesn’t make sense to me that if I chose option 1 and squash the bond that I will be paying the same monthly installments?
Option 2 means that I will not be able to access any of the money if pay the total amount.
Please use the example below:
Bond = R1mil
& Pay R1mil into option 1, what happens?
Bond = R1mil
& Pay R1mil into option 2, what happens?
Thanks
If you want to save interest and thereby pay off your home loan sooner but still have full access then you must select option one.
If you select option two and pay in a bit less, then effectively the bank taps into the pre-paid amount to “top-up” to the original installment.
What happens when I select option 1 but pay the full amount off.
What happens to my monthly installments?
If you pay the full amount then you have settled the outstanding balance so no installment
Hi Maya,
What happens when the Absa Flexi reserve balance is more than the outstanding home loan balance?
In theory you could just settle the home loan – but keep the credit line available if you want to draw on it at some point
Hi
I chose the Flexi option with FNB when applying for a smart bond and my primary goal is to reduce my monthly installments whenever i deposit extra funds. Will that happen or will the funds sit in reserve for future use?
I am a capitec and planning to switch to fnb as the one that approved my bank application.
I would like to use fnb for salary + bond repayment only.ONLY!
then remaining be tee taken back to capitec to continue using as normal.
My question: what fnb account type (cheaper bank fees) will suits this option of mine.
Regards
Maya
If FNB required you to open an account with them for the bond application you should check if that required a specific account eg: Gold Account. If not, Easy is the cheapest
My flexi bond with fnb is paid up 5years ahead of final payment date. I intend to borrow against it in a couple of years for renovations. Can i however deposit additional fund into the account to build up a forced saving to draw upon that renovation date?
Good day
I have an access bond with Standard bank and I’ve noticed that every month when the bank debits my cheque account for the bond amount, the same amount also gets deducted from the available funds in my access bond. This money is then returned after 10-12 days to my access bond. I have asked the bank as to why they do this and they could not give me a clear explanation and only said that this is the way the system works.
Do you perhaps know why this is the case?
I have sent a query to Standard Bank but it sounds like a system design. You owe them that money on the day they issue the statement so it is reduced from your balance. It is then ‘repaid” with the money from your cheque account. Why it takes ten days is the question and an issue for me – when it comes to interest every day counts as interest is calculated daily…
Hi Maya
I agree, the 10 days is just too long. I’m sure i could have saved quite a bit of interest over last 5 years.
Hi Maya
I have multiple home loans, with ABSA and std bank. My debit order is on the 1st day of the month. I pay extra R5000 on all home loans on the 25th, will it help? Or which is a perfect date to pay extra? Thanks
Interest is calculated daily so the earlier you pay your installment the better. However, the much bigger kicker is the fact that you are paying in extra in the first place. Every additional rand you pay in extra goes to pay the capital and settles your mortgage sooner
Hello Maya. What happens when the access bond is more than the balance on your mortgage? Do you continue to pay instalments, with no interest, until you decide to capitalize the access bond amount?
Which bank are you with?
Hi Maya. I have flexi bond account with fnb. I take my salary to this account each month before debit orders, for about 15 days and transfer it for debit orders on last day. The capital amount does not seem to reduce. Is it bad idea to do this. M
You probably are saving a bit of interest but a fairly small amount so it would not necessarily make a big difference
Hi Maya,
Why can’t banks make the amort balance available to their clients so that we can accurately plan our budget and know exactly what will be available to us in our access bond before we make extra payments?
Thanks.
They should – ask them to do that for you
Hi Maya.l have Smart bond with FNB. I just found out about Access bond and I have been paying in double my monthly installment. I want money to pay for my son to studies. Can l change my bond to Access bond and get money for my son?
Best to ask the bank
I asked FNB and this was the response:
Correct, the customer can gain access to their prepaid funds. This can be done in one of two ways:
1. If the customer has activated the automatic access to fund which is referred to Flexi Option, then they will have 24 hours electronic access to these funds.
2. If this facility has not been activated, the customer can activate it on the FNB App or contact FNB Home Finance on 087 730 1144 to access their funds.
By paying surplus funds over and above the monthly repayment, the additional funds will reduce the home loan balance, which effectively saves the customer a substantial amount of interest over the term of the loan. The customer will need to ensure that the home loan is paid via debit order or stop order to allow for the adjusting repayments whilst accessing these funds. This is subject to the Flexi Option Terms and signed Agreements.
Hi. I am married out of community of property without accruals. When purchasing a house last year my wife and I took out a joint bond. The bond repayment comes off my account. I have saved additional money but do not have a need for it at this stage so after doing some research I have found that a good place to park this additional cash (until I need it) is in my access bond. However, if I do this will the additional monies be seen as belonging to both my wife and I?
Good question. If you have a joint bond you can require that both signatures/authorisation is required to withdrawal. But most likely the bank has your bank account as the one where they will make the transfer. In the case of a divorce, one can show the flow of funds to ascertain where they came from
You will get a form that both owners must signed an to which account the monies should go to…if you wife don’t sign you won’t be able to acces that funds
correct
Hi,
I pay a little extra on my bond. I would like to know is it best for a debit to happen a day before monthly interest is charged or a day after the interest rate is charged.
hi
I have a flexi reserve account with ABSA- do you think buy paying extra and saving this way for my sons education is a good option?
For a shorter investment period of less than 5 years it is a reasonable product
Hi Melani. Saving for your son’s education by putting all excess savings into your home loan is not a bad investment strategy. It can be compared to a bank account paying high interest rates (ie the rate you got at the bank for your home loan), all tax-free.
But I personally prefer not mixing up goals all in one account. That is, you may have other goals. Such as some short-term goals (new car, holiday) and long-term goals ( child tertiary education, retirement). Once you start mixing in these goals into your home loan, things become a bit messy to keep track of. “Can I afford a new car & still be ok for my child’s tertiary fund”. Therefore, I like to keep separate accounts for separate goals. I do use my home loan access facility for emergency fund. But for my daughter’s education fund, I have a dedicated ETF investment. I know how much I need to put away each month towards this goal & how far away I am still from reaching it. If I were to invest it all in my home loan, the water clarity is somewhat murky given all the other goals swimming around.
Hope that is helpful
Walter at http://www.MyMoneyTree.co.za
I want to know when is the right time to pay your extra in ones mortgage in order to reduce interest. It is with the monthly mortgage instalment or some where during the course of the Month?
as interest is calculated daily, the earlier the better
Hi, we have access bond option 1 with standard bank. We have been paying in extra each month, additional to the set monthly debit order. However, each month the amount of interest we pay gets higher and the amount accessible to us becomes lower. Could you explain why this may be happening. Thanks
that does seem strange. I would recommend you speak to Standard Bank and get an amortization schedule
I have a flexi access bond account with FNB. On 11 March I had R64 118.37 in that account and on the same day FNB deducted the yearly homeowner insurance premium of R15 500.00. The access amount went down but to my surprise when I get the statement the monthly insurance premium is added to the monthly bond repayment. I want to know if FNB is double charging me or not as my flexi account is in credit.
This is something you should contact FNB on. I am not clear from your explanation if the money came from “credit” in your access bond but you do not want to be funding your insurance from your mortgage and be paying interest on it
Hi
I have not paid extra into my bond, due to looking after extended family. May income has doubled in the last few years, the family is sorted and now looking at taking out a second bond to buy a house and rent that that out.
What are the chances of banks approving for this reason? Any advice in this regard will be greatly appreciated.
Kind regards
Kathy
The bank would only look at your current income to see if you could afford the additional mortgage – they would not take potential rental income into account. This is due to the affordability rules of the National Credit Act.
After my divorce my ex husband was supposed to remove my name from the bond… this was not done. I understand my obligation to the joint bond but am I liable for extra debt he is incurring by taking money from the access bond – I have not been informed of this (I thought I would have to give permission)
That is an excellent question. You have effectively signed surety for the full value of the mortgage. He couldn’t take on a credit extension but could draw on any extra funds that were paid in. You must inform the bank urgently
Hi, thank you so much with the information. I’m also thinking of buying a house in 2019, is it compulsory to have a deposit if I’m the first time buyer? The second question would be is it possible to do joint bond as 4 friends. We’ve got this idea of buying a house or flat and rent it out. What are the disadvantages of this route?
Thank you in advance
As a rule banks prefer you to have a deposit, you may also qualify for a better rate if the bank can see you have the discipline to save. For your own finances it is a good idea to rather save a deposit as it makes the house more affordable.
I would be very cautious about buying together unless you are very confident on the financial strength and discipline of each person. When you take out a joint loan you are all responsible for the full amount, so if someone reneges you will have to pay in. You need a good, written agreement. Read these articles
https://mayaonmoney.co.za/2017/10/pros-cons-joint-home-loan/
https://mayaonmoney.co.za/2013/12/investing-property-club/