Access Bond Explained
Posted July 30, 2010 – 6:55 am in: MortgagesA new type of bond has emerged over the past few years. It’s called an access bond, and you can get them at almost any bank. With an access bond, you can treat your home loan like a savings account. It also supplies a balance to your savings account that is equivalent 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.
This type of loan really provides borrowers with a unique type of money management opportunity. What you pay into your home loan, over and above the normal installment, not only lets you pay off the home more quickly, but it also offers a surplus that can be used for short-term loans. However, you need to keep in mind 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 is to only borrow what can be paid off in a 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 are another area an access bond is beneficial. Student loans have higher interest rates. Because you can only pay interest until the student has graduated from school, these loans ensure that you pay interest for the maximum amount of time. Choosing to use an access bond for these expenses means you can lock into a lower interest rate and you can also repay the money on a convenient timeline.
Just like with all loans, access bonds have some advantages and some disadvantages. It’s true they do have a lower interest rate, but they also have a briefer payback condition. If you fail to pay the money back, in the given period, you could end up paying far more in interest than you would have with a traditional loan. However, the most important thing to remember is that you are borrowing against your home. If you fail to repay your loan, the bank repossess your property.
Susan Reynolds is the webmaster for a leading South African bond originator. For more information visit: http://www.bondcredit.co.za/
categories: Mortgage,Finance,Money,Property,Real Estate,Loans,Credit
