Ways to use a further loan

You can use a further loan for anything you like, but keep in mind that there are two types - ordinary and building.

• An ordinary further loan can be used for cosmetic changes to your property, for example painting, tiling, paving, etc. You could use it to install solar or other energy-efficient measures at your home. It could be a deposit on another property, make it possible to buy an investment property, or purchase a piece of land on which to build later. It could also go towards big ticket items like an overseas holiday, or to pay for a child's tertiary education or wedding.
• A building further loan must be utilised for something related to building. For example, your existing bond was used for the purchase of a vacant stand and now you want to build a home on the stand. Or, you want to add a bedroom, bathroom or garage, or put in a swimming pool, at your existing home.

How long does it take?

The good news is that it is usually quicker to finalise a further loan than a new bond because there is no transfer involved.

What does it cost?

It is important to understand the costs associated with a further loan, and to be aware of the consequences of not keeping up with your repayments.

A further loan requires another home loan to be registered, so there will be valuation fees and bond registration costs, etc. Make sure you budget for these. Keep in mind that in some cases the interest rate could be adjusted, so do not assume it will be the same as the original rate concession you received from the bank when your existing home loan was approved.

A further loan is secured and granted against your existing property, so make sure you can afford the additional payments that come with it, otherwise you risk losing your property, which could cost you dearly.

Debt consolidation

If debt consolidation is your main priority, you may want to look at other options than doing it by way of a further loan on your existing home loan. It is true that you would most likely get a lower interest rate on your further loan than on a personal loan, but in the long run you could end up paying a lot more. Ask your financial advisor to do these calculations for you and compare carefully before deciding to use a further loan for debt consolidation.