Can banks change your credit agreement?

If you innocently dip into your access bond to use the capital to fund a building project, your child’s tertiary education or anything else for that matter you could be opening yourself up to paying more in interest. This is according to Paragon Lending Solutions, who claim that: “Not only is the age of the access bond over, but they may trigger changes which result in new, unattractive rates from their bank.”

Tim Akinnusi, head of sales and client value management at Nedbank Home Loans, revealed that whether or not a new interest rate will be charged will depend on the customer’s specific situation.

“Should clients want to access the additional funds paid into their home loan over and above their monthly repayment, Nedbank will not change the rate and clients can access the funds via internet banking. If clients want a re-advance to access the capital they have paid into their home loan over time, then we will do a credit assessment to ensure they can still afford the loan and currently we do not re-price the loan. The last scenario is if the client wants a further loan beyond their initial loan value then we will re-price the loan as it is a new credit agreement,” explained Akinnusi.

Determining your interest rate

Nondumiso Ncapai, head of business development at Absa Home Loans explained that when a customer approaches the bank for additional funds on their existing home loan, it may result in a new loan agreement being entered into, and therefore the interest rate would change in line with the bank’s pricing policy at the time, and will be relative to the customer’s current risk assessment.

“This lending rate change could be up or down, depending on the outcome of the affordability and credit assessment. In all instances, the change in rate is explained to the customer and needs to be accepted to effect the requested change in the commercial agreement,” clarified Ncapai.

Ways a bond limit can be increased:

Ncapai explained that an increase in the current limit of your bond account, can be carried out two ways:

1. Re-advance: You are able to apply for the loan up to the original amount that was borrowed at the outset of the loan.
2. A further advance application: Where you require more than the original loan amount, you would need to go through a registration process to register an increase bond amount.

“In these cases, the required and necessary credit, risk and affordability assessments would need to take place – the interest rate on the existing home loan, taking the additional funds applied for into account, would be reassessed and this could it trigger an adjustment (downwards or upwards) in the lending rate depending on and in line with the banks pricing policy at that point in time,” added Ncapai.

The guidelines for credit agreement changes

The changes made to a customer’s existing interest rate would be lie predominantly in the area where the customer is applying for the approval of additional funds on their existing property or home loan, according to Ncapai.

“Each application for additional funds is assessed on the merit of the application and applicant, i.e. affordability, credit and risk assessments specific to the transaction – based on these factors and in line with the banks current pricing policies a new interest rate could be offered to the customer,” said Ncapai.

Ncapai added: “Since 2007, the banking landscape has changed significantly. Increased legislation and regulation has improved the sustainability of the banking system in South Africa, and has also increased the cost of funding. Therefore, new agreements would attract revised pricing based on the cost of funding available to banks which includes the cost of these new legislative and regulatory measures.”

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