Maximise your Property Investment with Access Bonds

What is an Access Bond and how to use it to grow your property portfolio

Any savvy property investor understands the importance of leveraging smart financial tools to maximise their returns. One such powerful tool I am quite fond of is the access bond. But before getting into why I love it, let’s consider what access bonds are and how you can harness their power and grow your property portfolio.

What is an access bond?

An access bond is a home loan that allows borrowers to withdraw surplus funds they have deposited into the bond whenever needed. Or in other words, with an access bond, any additional money you pay into your bond, you can access again when needed.

This arrangement enables homeowners to enjoy the advantage of paying interest on a reduced principal amount while still having the flexibility to access the extra money if or when required. Some banks call an access bond a flexi bond.

All banking institutions offer access or flexi bonds. There are usually two options to get an access bond:

1. You can either include the access bond feature in your home loan application and have it approved simultaneously, or
2. You can apply for the facility separately after your bond has already been registered.

Why use an access bond?

Depositing surplus money into your home loan account is a wise investment strategy. By doing so, you effectively save at the loan’s interest rate without incurring taxes on the interest saved. This approach typically yields higher returns compared to other investment options available. Keeping your surplus money in an access bond is also a sensible choice because it provides the best risk-free return on your investment. This makes it an ideal avenue for accumulating tax-free savings.

The great thing about an access bond is that any money you pay into it is considered a loan repayment, reducing the interest charged since a smaller capital amount is now outstanding. This either reduces the monthly bond payment or the monthly bond payment remains the same, but the bond is paid off quicker as a larger portion of the bond payment is now allocated to capital instead of interest. As a property investor who is keenly aware of my monthly cash flow, I always opt for the first option, where the monthly bond payment is reduced.

As a property investor, you always want to use as little of your own funds as possible. That’s why I always try and obtain a 100% loan from the bank when buying a property. I do this even if I can put a deposit down because I can always pay those available funds into my access bond after the bond has been registered. And it has the same effect as putting down a deposit beforehand. The only difference is that I have those funds available for future requirements or investments.

It is, however, crucial to note that an access bond does not grant you the capability to borrow the entire amount you have paid into the bond. Instead, you can only withdraw the amount that exceeds your regular monthly instalment. If you want to access the amount of the bond you have already paid off with your monthly instalments, you can apply for a readvance.

A readvance is when the bank allows the borrower to access the capital that has already been repaid. This is done by utilising the existing mortgage bond. Generally, several conditions are associated with this arrangement:

1. The borrower must maintain good creditworthiness
2. The value of the property must have either increased or remained stable
3. The repayment period must remain unchanged, and
4. The amount borrowed is limited to the difference between the initial bond and the outstanding balance.

Read our article, Is it Better to Pay Off or Refinance your Investment Properties?, to learn more about the benefits of refinancing.

I always encourage property investors to refinance all their properties to 100% of the market value as far as possible. That doesn’t mean you need to use all the available funds. You can keep it in your access bond. Remember, cash is king! Having cash available can help you take advantage of opportunities that arise or get you out of trouble… Having a lot of equity means next to nothing in these two scenarios.

Read our article, 5 Points to Keep in Mind when you Refinance Property, for more information on things to keep in mind when refinancing.

The benefits of using an access bond

Let’s assume you’ve built up surplus funds in your access bonds… Now what? There are four main ways to use the additional money you’ve paid into your access bond. You can:

1. Leave the funds in there to build up your reserve fund to healthy levels in case of emergencies or changes in the economic climate. As a property investor, having an emergency fund or reserves in your access bond is a prerequisite. I recommend having at least 10-15% of the value of your properties as cash reserves in your access bond.
2. Use the funds to expand your property portfolio and cover costs such as transfer fees and deposits (if needed) to buy more investment properties.
3. Use the funds to cover your monthly shortfalls so you don’t have to pay them from your pocket.
4. Use the funds to repay loans you have made to your property entities and for your enjoyment. This, however, should only be done if your reserves are healthy.

When used correctly, an access bond is a dynamic tool you can use to expand your property investment portfolio and seize new opportunities. All you have to do is harness its potential and unlock the path towards sustained growth, financial prosperity, and a flourishing property investment portfolio.

Read the entire article in the July/August Edition of Real Estate Investor Magazine.