When should you consider further loans?

Over the recent years, as the crediting policies that are enforced in South Africa became more strict, the possibilities for getting new loans are shrinking. For that reason, financing institutions are creating new crediting options for their potential customers. One of that options is the further loan option. Here we will discuss that financing option, and explain how and why to apply for a further loan.

The Value of Your Home

Despite the global trends, the real estate market in South Africa has seen a slight increase in the value of properties over the last few years. This, when combined with the above mentioned information about the problems with obtaining credits have brought forward an interesting new option for home crediting- the further loans. How do these loans work? Well, basically, if you have already purchased a property in the past, whose value has risen since, you can qualify for a further loan or, how it is sometimes referred to, a readvance. For instance, if you have bought a house worth 300.000 rands two years, and now find that the house value has risen to 600.000, you can try and negotiate a further loan, which will let you to gain access to those extra 300.000 value of your home.

The Procedure

Usually, the further loans are only approved for funding additional investments into your home. This is generally a good investment, as it further increases the value of your home. However, at times, these loans are approved for other means too. The standard procedure after the applying for the further loan, is that the property is reassessed in order to determine its value. Also, the owner of the property credit will be reviewed. Also, the lending institution will ask for a title report, and look for any other liens that appear. If everything comes positive, a further loan is approved. All of this, of course, comes at a cost. The cost for this procedure typically include second bond registration costs, conveyancing fees and the cost of valuing the property. Although this cost amounts to no more of 1% of the loan amount, it is advisable to be careful when asking for a further loan. You should be aware that the increased loan will mean bigger installments that need to be paid, monthly. Also, you shouldn`t take a loan like this unless you have a sensible idea on where to spend it. Also, you should keep in mind that the property value may fall, and this could lead to negative equity.

The Alternative

A nice alternative for accessing the equity of your property is the possibility for renegotiating the terms of your current loan. With the rise of the price for your home, the loan-to-value figure goes significantly down. This could allow you to renegotiate your credit rate at a considerably better terms than you did originally. This is a nice, and a profitable alternative to the further loan crediting option.

So, you can consider getting a further loan if your property has risen in value. But be careful about it, further loans may not be everything you would want them to be.