In many instances home owners take out second bonds for upgrading or repairing their property. You do not have to make improvements on the property with your 2nd bond; it can be used as you wish. There are several home owners who will take out the 2nd bond for reducing high interest debts or for paying for a child's education.
Your equity in the property is what the second bond will be based on. Be cautious about removing the properties equity. It is not recommended to remove the homes equity and be forced to pay interest on it if unnecessary. Making improvements to the home with the second bond will increase the homes equity. If you are planning on adding a room or finishing a basement you could increase the homes total value and the second loan would have been a good idea. If you use the second bond to go on a cruise you will have lost the equity in your home and would be considered a bad move.
If you used the homes equity to pay student loans or to take a vacation then it is lost forever. You might find that upon selling the property that after closing you walk away empty handed. The point of owning a home is that it is an investment, so treat a second bond as an only if completely necessary option. If the home needs a roof or you would like to add a room then the 2nd bond would be increasing equity in the home and would be a good investment move.
You do not have to use the same mortgage company that holds your primary bond for your second bond. You are able to shop around banks, credit unions, as well as other mortgage companies for the best rates. The 2nd bond will have the same feel as the primary bond so is sure to ask about the terms as well as the rates.
You may expect to pay a slightly higher interest rate on the second bond. Only a portion of the homes equity will be able to be taken out for the second bond. Some companies will offer 100% equity lending but the majority stay around 85% or lower.
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.
In order for your home to be assessed properly be sure to inform the lenders and the appraisers of the improvements that are going to be made. Having a permit and a blueprint of the improvements will help a great deal in gaining the equity points for your 2nd bond.
Susan Reynolds is the webmaster for a leading South African bond originator. For more information visit: http://www.bondcredit.co.za/
