What exactly is a Further Loan?
A further loan is usually beneficial for those homeowners who bought their property a while ago. Say for example you bought your home five years ago for R500 000 and the home is now worth R800 000, you will be able to take a further loan for the amount of R300 000. Homeowners who are bond-free can also refinance their properties to raise some capital.
When applying for a further loan, your home will be appraised to determine its value and your credit file will be reviewed. The bank or lender will order a title report on your property to search for any liens that might appear. If the bank or lender is satisfied with all these items, the loan is likely to be approved.
Unfortunately there will be costs involved in taking a further loan. These costs include second bond registration costs, conveyance fees and the appraisal fees. The total of these costs is usually only about 1% of your total loan amount, but must still be kept in mind. Your monthly installments will become bigger, so make sure you can afford it before you apply for the loan.
It is advisable to use further loans for funding additional investments on you property, as this will improve the value of your property even more. With the property market in South Africa at this stage, you never know if your property’s value will rise or fall in the next few years. Your property’s value might have grown from R500 000 to R800 000 in the past few years but it might depreciate in the next few years, leading to negative equity.
Further loans can be used to finance renovations to your home, but some homeowners use the money to buy new cars, consolidate their debt or for other capital expenditure. This is one of the cheapest ways to access finance because home loan rates are typically the lowest of all other financing methods.
We will give you free advice on the questions you might have about the costs associated with further loans and we can help you understand the personal financial planning implications of a further loan. We will also be able to renegotiate the rate you are currently paying on your home loan as your loan-to-value ratio improves.