Refinancing Your Home In South Africa

Refinancing your home is a way of unlocking the extra value that has accumulated as your house has increased in market value. As the value of your property increases you can refinance, or rebond, your home to gain access to this additional value. Bonds in South Africa contain a lot of extra value due to the strong price gains in recent years, and homeowners are being encouraged to convert this value into cash that they can use for other purposes. The market for this has grown by over 20% in the past year alone.

There are two ways of accessing the extra value in one's property: refinancing and registering a second bond. Typically, people use the money that is freed up to buy cars, make home improvements or make other capital investments. Two of the main advantages of rebonding a property in order to make these acquisitions are that debt is consolidated, and that interest rates are more favorable on bonds than on hire purchase agreements. This also allows people to convert relatively short-term liabilities into long-term ones.

Despite the conditions for bonds in South Africa being optimal, and the encouragement from banks to explore refinancing options, it is an undertaking not to be lightly embarked upon. There are pitfalls that need to be considered beforehand.

When you refinance your property, your monthly repayment instalments will increase. You need to be sure that you can comfortably afford this, as you certainly do not want to end up in a situation where you are forced forfeit your property for having bought a new car. The second major consideration is that, should the property market fall, your house may become over-valued - a situation which is referred to as being in negative equity. To avoid this, it is a good idea to use the extra finance to make improvements to the house, so that you are adding even more value to it.

If your property has increased in value, but you prefer not to refinance, the other option is to renegotiate your interest rate on the house, as banks are open to this if the ratio of your property value to your original bond is favourable.

3/7/2008 4:04:54 PM