Your property is an asset that can help you unlock funds, giving you the financial flexibility you need to make strategic decisions that can positively impact your future. Having a good understanding of the different ways to unlock these funds is important. At Transafrica Bridging Finance, we’re passionate about guiding you through this process so that you can make educated decisions on the best way forward for you, so let’s take a look at the different options available to you.

Before you even start weighing up your options, you need a proper understanding of the value of your home. While you might have an idea of what your property might be worth, having it professionally appraised is important as it will give you a written confirmation of its true current market value. This appraisal will also be important for any of the lenders you speak to during this period, as it will impact the amount that they are willing to lend you. Once you’ve got an idea of what your home is worth, you can chose from a variety of financial services that will suit your needs.

Bridging Finance

This option is suited to a homeowner who is in the process of selling their home. Bridging finance is a short-term loan designed to bridge the gap between the sale of an existing property and the purchase of a new one. In South Africa, the property transfer process typically takes between 8 to 12 weeks, but this can stretch out depending on a few factors. This is where a bridging loan is a hugely valuable tool to unlock cash while you wait for the transfer of your home to go through.

Available from financial institutions and specialised bridging finance companies, this kind of short-term loan is designed to be fast-tracked, providing you with faster access to capital, which you can use as a downpayment on your next home, for moving costs, or to help pay for renovations in your new home. Bridging finance is flexible finance, usually settled when the proceeds of your sale come through and lenders will typically charge a small daily interest fee on the funds required.

Home Equity Loans and Lines of Credit

A home equity loan or a home equity line of credit (HELOC) are financial products that allow homeowners to borrow against the equity they have built up in their property.

• A Home Equity Loan is a lump-sum loan that is secured against your property. The amount you can borrow is based on the difference between your property’s current market value and the outstanding balance on your bond. A home equity loan usually has a fixed interest rate and repayment term.
• Home Equity Line of Credit (HELOC) operate differently to a home equity loan. This loan works more like a credit card, providing you with a revolving line of credit that you can draw from as needed. Interest rates are usually variable, and you only pay interest on the amount you borrow.

Unlocking funds from your Access Bond facility

Many South Africans choose an access bond when applying for their home loan. This is because it allows you to withdraw any extra payments you have made into your bond account. If you make additional payments through the years, you can build up a surplus that is accessible when you need it for whatever reason you might need it. For those close to paying off their bond, there is also the option of keeping the access bond open to use as a loan facility should the need arise, using it to fund further property purchases for example, without having to apply for a new loan.

Refinancing Your Bond

Another way to unlock equity in your home is to refinance your bond. You do this by renegotiating your home loan. In doing so, you may be able to secure a lower interest rate or extend the repayment period. This will help to free up cash flow on a monthly basis as you will reduce your monthly payments. It can also potentially give you access to the equity in your property, if you switch over to an access bond.

Alternative income streams

It might not always be a loan that helps to give you access to funds. Lifestyles across South Africa have changed significantly over the years.  Many people – particularly those approaching retirement, those wanting to reduce living expenses, or those wanting to travel more, are selling their larger properties in favour of smaller, lock-up and go homes, and this step can provide a substantial cash injection which can be used to invest, pay off debt, or enhance lifestyle choices.

The rental market is strong in South Africa, and it’s giving homeowners access to cash in different ways. Empty nesters with larger homes are renting their homes to families while moving into  smaller accommodation and using the income from the rental to pay off the bond on the bigger home. For those who have already paid off their bonds, this is a great way to cover costs of your smaller home, leaving residual income from the remaining rent.

Converting part of your home into rental units is also proving to be a popular choice for many homeowners today as the rental received goes to paying off the bond while the homeowner still has the benefit of living in their own home.

Explore all your options

Unlocking funds in your property process can provide the financial flexibility needed to navigate the South African real estate market effectively. By understanding your property’s value and exploring options such as home equity loans, bridging finance, access bonds, refinancing, downscaling, rental income, you can make informed decisions that enhance your financial position, and help you achieve your property goals.