Why you should resist the urge to 'borrow' from your home loan

Homeowners who have an access bond facility on their home loan might often be tempted to borrow a little against what they have paid off each time they are cash-strapped - perhaps wanting to consolidate smaller debts or when they need an extra boost for a larger item they'd like to buy for their home - but this is not advisable.

This is according to Michael Bauer, managing director of property company SAProperty.com.

According to Bauer, this is often a strategy some people recommend, as interest rates on credit cards and short-term loans are often much higher than the home loan interest rates, and for many, this is a preferred way of borrowing cash.

Doing so might be a reprieve, but it is a short-lived one, as borrowing additional amounts will increase the monthly bond repayment, and it might push it to the point of financial stress or unaffordability.

"In addition, you put your home at risk if you can't pay the mortgage instalment each month, which is not a sensible move as this destabilises what is possibly the biggest investment you'll ever make," says Bauer.

Another point to note when considering borrowing from an access bond is that there are additional costs involved in doing so. There will be an additional valuation fee, registration fee, plus legal fees, and these are usually added to the home loan account if the applicant does not have the cash to pay for these upfront. Effectively this is paid for over the life of the loan, with interest added.

If, however, debt consolidation is absolutely essential, and there is enough available on the bond to draw one large lump sum, i.e. the total of all the smaller debts, take the maximum amount - but only do this once. Then pay whatever was being repaid to service those smaller debts into the bond account, which then quickly reduces the capital balance of the home loan and rebuilds home equity. Resist the temptation to pay just the minimum - put as much as possible into the bond each month, which will help pay the home loan off faster and save on interest paid.

Also ensure that all 'extras' in the household have been pared back, such as store credit cards, gym contracts, extra mobile packages, online entertainment packages, etc.

"Do ensure that you know what interest rate you'll be paying on the new amount and what the full costs are before deciding to go this route - it would make sense to ask a bond originator to help negotiate the best rate possible. Bear in mind that interest rates on mortgages are linked to the prime rate and can vary from bank to bank," says Bauer.

"Also remember that refinancing short term with your home loan may free up cash flow, but it will add a lot in interest charges over the 20-year lifespan of a bond."