2nd Bonds Basics
A second bond is normally used for making repairs or upgrades to the property. You are able to use the second bond for anything you want, not just home improvements. Seconds bonds are used for sending children to college as well as for eliminating high interest debt.
The equity in the property will determine the lendable amount. If it is not a necessary reason then a 2nd bond should be avoided. You do not want to pay interest on your equity unless you have to or it makes sense to. If the 2nd bond will help increase the property’s value then a 2nd bond is a good investment. A bad investment decision would be to take out a 2nd bond for a vacation or a new car.
A second bond creates a new loan against the property. This will have to be paid off at the time of selling the property just as with the primary mortgage. Be sure you understand that if you use all the homes equity and do not create more then when you sell the property you will be coming out empty handed from closing.
Your mortgage company, local bank or even credit union will be able to quote you loan rates for your 2nd bond. You do not have to use your current mortgage company so shop around for the best rate possible. Just as with your primary loan you should ask questions and get all the details of the loans terms and rates before deciding.
Most places have slightly higher interest rates for secondary bonds. You may also find that some companies will offer you 100% of your equity as available for lending while others normally allow 85% or less. Be very cautious of the 100% lenders as they will have much higher interest rates and you also are using all your equity that took years to build.
The property will be appraised by a professional to determine its current value. The appraiser will check surrounding properties as well as inspect the quality of yours. The lender will be given the information so they can determine what the available equity amount actually is. Remember, most will not lend 100% of the total equity, only a portion.
Treat the appraiser as if he were someone looking to buy the home. Make sure that any noticeable issues are resolved before he arrives. You want to get the home in the best possible shape before it is inspected. If there are any repairs that need to be done, now is the time to do them. Simple things such as weed removal, un-cluttering, or tacking back up a gutter can earn you hundreds of dollars in equity.
It is a good idea to inform your lender and the appraiser of the improvements that are going to be made. If you supply them with a blueprint and working permit for the upcoming work you may be able to earn some bonus points for your 2nd bond.
Susan Reynolds is the webmaster for a leading South African bond origination portal. For more information visit: http://www.bondcredit.co.za/