Online Calculator | What Is A Second Bond?

What Is A Second Bond?

When people buy a property, either as a first time buyer or even for the second time or the third, they generally need a bond to do so. It is unusual for someone to have sufficient financial resources to buy a property outright. Banks are in business to lend money, and they enjoy lending money for bond financing. The reason being that they know that their money is safe, usually because they hold the deeds for the property and that they have insisted that their client hold a personal equity on the property representing at least 20% of its value, and preferably 30%.

During an average lifetime, home owners will buy and sell their family home three times, usually to upsize yet sometimes to downsize.  Selling a house is a fairly straightforward operation. The bank calculates a figure that has to be repaid on the day that the deeds to the bond property are to be exchanged and will arrange for this sum to be deducted by the lawyer who is handling the sale.

Taking out a second mortgage is a similarly straightforward process.

Situations may change a little when a bank’s clients applies for a second bond. This usually occurs when their client has decide not to go through all the upheaval of moving house in order to upsize. Instead the prefer to go through the minor upheaval of adding an extension to their property, to provide more public areas or extra bedrooms to house a growing family.

Banks will consider a second bond because in the long-term it makes them a lot of money. Naturally the bank wants to make sure they are not getting ripped off and the person can afford the second bond. Banks usually request professional estimates from contractors if they are planning on renovating.

Once the bank has full details of the alterations or additions, the bank will take into account the current value of the property as well as how much the property will be worth after the renovations are complete. Last but not least, the bank will analyze the mortgage’s principal which remains to be paid off.

If you plan on using the second bond on capital tied up on your property, such as to help out another business, the bank is less likely to agree with your move. Banks prefer you reinvest the second bond on something of value to your first bond.

On paper if the client meets the criteria to be granted a second bond the bank should and will give it. Before they do so they will make every effort to ensure that the client is not making a mistake and jeopardizing their family home.

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