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 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 new mortgage is even more straightforward, especially if the client has displayed responsibility in handling their account

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.

When considering such a request, the bank will follow the procedures that they would do when granting a new mortgage, but with one or two subtle differences. They will naturally request that the person applying for a second bond submit detailed estimates from registered contractors on the work that is to be carried out. They will be much less inclined to grant a second bond if the owner intends to do the work themselves or work with contractors who do not issue receipts. The bank needs to know that the work carried out will increase the value of the property.

Once the bank has full details of the alterations to be made to the property, they will also take into account the current value of the property as well as how much it will be worth once the renovations are completed. Other factors that will be taken into account will be how much of the mortgage’s principal remains to be paid off as well as the current equity value. This category of second bond request is fairly straightforward and generally welcomed the banks and will almost always be granted.

There are other categories of second bond requests that banks are less comfortable with this. These are cases where the bank is asked to grant a second bond where the money is not to be re-invested in the property. This may occur when the owner wants to release some of the capital tied up in their property to help an ailing business or to establish a new one or fr nay other reason.

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.