The Homeowner’s Guide To Understanding Bond Switching
Thinking about refinancing your home loan? You might be surprised to learn you have options beyond sticking with your current bank. Bond switching, also known as home loan refinancing, allows you to move your existing home loan from one bank to another. This can be a powerful tool for South African homeowners looking to save money and potentially improve their financial standing in the long run.
What is bond switching?
Bond switching involves transferring your existing home loan to a new lender. This can be done to secure a lower interest rate, access better customer service or additional benefits, consolidate debt, or even adjust your loan terms if your financial circumstances have changed. In simpler terms, the process requires your existing home loan to be settled in full, and the existing bond cancelled, by taking a new loan from a new financial services provider and a new bond being registered as security for the repayment of such loan.
Why consider bond switching?
There are several reasons why South African homeowners might be interested in switching their bonds:
• Lower interest rates: New banks are constantly entering the market, offering competitive rates. Switching means you could potentially save thousands over the lifespan of your bond.
• Improved service or benefits: Different lenders offer varying levels of service and perks. You might find a bank that better suits your needs, providing exceptional customer support, additional features, or bundled benefits.
• Debt consolidation: Rolling other debts into your home loan with a lower interest rate can simplify your finances and potentially save you money.
• Changing financial circumstances: If your income has increased, you might be eligible for a better interest rate. Conversely, a decrease in income could prompt you to switch to a more manageable loan term.
What you need to know about the bond switching process
Bond switching isn’t an overnight decision, but it can be a smooth process with proper guidance. Here’s a simplified breakdown of what to expect:
1. Compare rates: Research different lenders and compare interest rates, fees, and terms to find the best offer.
2. Apply for a new bond: Once you’ve chosen a new lender, submit a formal application for a new bond.
3. Bond Cancellation notice period: You will have to give your current bondholder notice that you intend cancelling your bond.
4. Credit checks: The new lender will conduct credit checks to assess your financial health to ensure you are able to afford the new loan.
5. Legal support: The Bank to whom you are applying to switch your bond to will nominate and appoint a conveyancing attorney to attend to the new bond registration.
6. New bond registration: Your attorney will register the new bond and cancel the old one at the Deeds Office.
The potential downsides of bond switching
Doing your homework properly means weighing the pros and cons of your decision. While bond switching offers benefits, there are also some downsides to consider:
• Costs: There will be associated costs like cancellation fees, transfer duties, attorney fees, and administrative charges. Carefully weigh these against potential savings and see whether the new financial institution covers any of these costs.
• Time commitment: The process can take some time, so be prepared for a few weeks until everything is finalised. Don’t forget the 90 day notice period with your original bond holder.
• Credit checks: Multiple credit checks in a short period can slightly impact your credit score.
• Bond Repayment Period: If you are well into the repayment of your current home loan (e.g.: you are 12 years into your bond with only 8 years remaning) consider whether taking out a new 20-year loan is worth the additional interest that will accumulate over the extended period.
Making the switch smoothly and securely
At Hammond Pole, we understand the complexities of bond switching and attend to these registrations on a daily basis. Our team of experienced conveyancing attorneys are here to assist you.
Blog by: Brendan Michie
Contact Hammond Pole today to discuss your bond switching needs and to ensure a seamless and secure process.
Brendan Michie – brendanm@hammondpole.digitalfoldstaging.co.za