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Which is better: a loan or access bond?

A Fin24 user wants to know which is better: a personal loan or money from an access bond account. He writes:

My wife and I purchased our home for R500 000 after a large deposit. Our bond costs R4 327 but currently we pay R5 811 to try decrease the years and ultimately the interest charged.

I have a personal loan for R80 000, settlement +/-R60 000 with a fixed interest rate of 16% (R1 900 per month).

My question is: would I save money if I took out the R60 000 against the bond to repay the personal loan, and put that money (R1 900) directly into the home?

I did ask my bank about taking the amount out and they informed me the interest for the house will change from 8.6% currently to 9.5%.

Now I'm not sure if I would be saving money or not. Please advise.

Mari van Wyk, Korbitec executive manager: customer relationships responds:


These kinds of calculations can often be more complex than one anticipates and depend on various factors such as interest rate fluctuations on loans with a variable rate, and the borrower’s ability to maintain a consistent instalment payment.

Additional information as well as projections around interest rates are needed to give an accurate answer as to what would be financially beneficial in this situation.

However, a basic comparison can be made such as the one in the table below.



Since no information was given as to the value outstanding on the home loan, the calculation considers both loans respectively from inception and compares these to a combined view, incorporating the known information as provided (eg instalment, interest rate and initial loan sizes).

Additional assumptions needed to be made, such as a constant interest rate over the loan period, as well as a loan period of 60 months for the personal loan.
 
While this can offer some basic insight into the result of the options available given certain assumptions, before making a decision it is always advisable to consult a financial adviser for a more detailed analysis.

 - Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query. 

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. 

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.




 
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