Now most financial institutions allow you to borrow against the repayments you have already made on your home loan to make home improvements, buy a car, or consolidate your debts. You can therefore draw up to the original amount of the bond.
Home improvements
It is sometimes more cost-effective to make improvements to your home than it is to buy another one. But, take care not to over-capitalise on your property.
Buying a car
Depending on the rate you are paying on your home loan and the interest rate offered to you by a vehicle finance house, you can save up to two percentage points in interest on your car by financing it through your home loan. But it is crucial that you do not spread the car debt over the full term of your home loan. Make sure you pay off "the car loan" portion of the home loan within five years.
The danger is that your car can cost up to five times more if it is re-paid over the normal bond period of 20 years. The bank does not require you to pay off your home loan sooner, so it's up to you to ask your bank to calculate how much more you should pay into your loan to effectively pay off the car portion of the loan over five years and then make sure you pay this extra amount into your loan every month.
Debt consolidation
If you are in danger of being swamped by debt such as your car loans, overdraft and credit card debt, you can consider consolidating all these debts into your home loan. Home loans usually have the lowest interest rates compared to other types of debt. Remember you can always borrow up to the original amount of your home loan once you have repaid a portion.
Once again, it is vital that you do not spread the additional debt added to your home loan over the full period of the loan.
Be careful of more debt and rather reduce the credit limit on, for instance, your credit card. If you are still unable to control your urge to splurge, cut up your credit card.
Warning
A danger when using the services of a mortgage originator (a company which sources a home loan for you) is that you may not get the best deal because originators may receive secret commissions, or possibly different commissions from different banks, prompting them to steer you in the direction of a particular bank.
So, when using an originator or home loan sourcing organisation, check that:
- The originator is getting a quote for you from all the banks;
- The originator is getting the same commission from all the banks;
- All commissions have been disclosed to you; and
- Make sure you compare like with like when assessing all of the options open to you.