Owning property creates several new opportunities.
One of which is the option to take out a loan against it.
This can be a smart way to borrow money.
But as you might expect, there are a couple of risks to consider.
Let’s break down exactly how it works, the pros, the risks, and how to do it the smart way.
Taking a loan against property in South Africa
A loan against property lets homeowners use their house or other property to get a big loan. The property acts as security for the bank. These loans usually have lower interest rates and higher amounts than regular loans without security. People often use them to grow a business, fix up their home, pay for education, or combine debts into one payment.
It’s a way to use the value of your home (or property) to get access to a lump sum of cash without actually selling it.
But wait, there’s more to it.
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How loans against property work
A loan against property lets homeowners borrow money by using their house or property as security. The bank checks how much the property is worth and then offers a loan based on part of that value, usually between 60% and 80%. The person who takes the loan must repay it with interest over a set time. If they don’t keep up with the payments, the bank can take the property.
Basically, the more of your home you own, the more money you might be able to borrow. But remember, if something happens and you can’t repay the loan, the bank can take it.
Lenders want to know two things: how much your property is worth and whether you can afford the loan.
Banks or other lenders assess the home’s value, look at your credit history, income, and whether you can afford the loan.
So, why do people do it?
Using your house as collateral
Advantages
- Borrowers can access larger loan amounts than with unsecured loans.
- Lower interest rates make repayments more affordable.
- Repayment terms often allow flexibility over several years.
- Funds can help achieve major financial goals without selling property.
Risks
- Missing repayments can result in foreclosure and loss of property.
- Additional costs, such as valuation fees, legal fees, and bond registration, apply.
- Interest rates can change based on market conditions.
While the advantages are appealing, the risks are real. This isn’t free money—your home is on the line. Make sure you borrow for the right reasons and have a solid repayment plan in place.
Always ensure the lender is registered with the National Credit Regulator and that all loan agreements comply with the National Credit Act.
Types of loans against property
Not all loans against property work the same way. Each one is designed for a specific purpose.
Here are the main types:
- Home equity loan: A once-off loan paid out in a lump sum, based on the value built up in a property. This option works well for large expenses, like renovating a kitchen, paying university fees, or consolidating debt.
- Second bond: A completely separate loan taken out on the same property, even if there’s still an existing home loan. This is often used for big investments, like buying additional property or starting a business.
- Access bond facility: A flexible option that allows access to any extra money already paid into a home loan. This type of loan can help cover ongoing costs, emergencies, or projects that happen in stages.
- Business loan secured by property: A loan designed for business owners who use their property as security. This is a good fit for those who need funding to expand operations, buy equipment, or hire staff.
What is your estimate? *The calculation is an estimate actual amounts may vary. What is your estimate? *The calculation is an estimate actual amounts may vary.
Try our debt reduction calculator to calculate your lower monthly debt instalment*.
Try our debt reduction calculator to calculate your lower monthly debt instalment*.
How to take out a loan against property
A loan against property can help cover big expenses like home improvements, paying off debt, or even buying another property.
The steps are mostly the same, but if you want to use an existing property to buy another, the bank will check if you can afford both repayments.
Steps to take out a loan against property:
- Check property value – Ask a professional property valuation or the bank’s assessor to tell you how much the property is worth.
- Work out equity – Subtract what is still owed on the home loan from the property’s value to see how much you can borrow.
- Choose the right loan – Use a home equity loan or bond increase for general needs. Use a second bond or access bond to buy another property.
- Compare lenders – Look at offers from different banks and credit providers to find the best interest rates and repayment terms.
- Get documents ready – Prepare proof of income, ID, property title deed, and statements for any existing bonds.
- Apply for pre-approval – Ask the lender to check if the loan is affordable, especially if buying another property.
- Submit an application – Fill in the forms and get a pre-agreement from the lender that explains the loan details.
- Check the loan offer – Read the terms carefully and make sure the interest rate, fees, and repayment plan make sense.
- Complete the legal work – A conveyancer will help register the new bond with the bank.
- Receive the money – Once everything is done, the funds will be paid out and can be used for your planned expenses or property purchase.
⭐ Related content: Pay off your home loan in half the time (Here’s how)
Final thoughts
A loan against property isn’t something to jump into lightly, but it can be a powerful tool with the right planning.
Make sure to understand the terms, work with trusted lenders, and only borrow what you can afford to repay.
Sidenote: Anyone who wants to use their home equity to help cope with unaffordable debt should consider a safer option like debt counselling.
If you want to talk to someone about managing your debt, we can help. Try our online assessment at My Debt Hero to see if you qualify to reduce your debt.
