Multiple mortgages

Extending finance on a home loan is possible in two ways: accessing funds under security of the already registered bond or, should the security provided under this bond not be sufficient, a second bond can be registered.

July 5, 2018

When applying for a mortgage loan with a bank, the loan amount applied for will be secured by the registration of a (mortgage) bond over the immoveable property. In the residential sphere, this would normally be a house, townhouse or sectional title unit. For example, an individual might buy a house and apply for a loan to pay the purchase price. On the transfer of the property into the buyer’s name, the bank granting the loan (the mortgagor) will appoint a conveyancing attorney to register a continuous covering mortgage bond (CCMB) in their favour over the relevant property.

Loan amounts and CCMBs

One must distinguish between the actual loan granted and paid out and the amount of the mortgage bond. More often than not, these amounts will be the same (e.g. a property will be bought for R1m and the CCMB is registered for that same amount). However, it is possible for the CCMB to be registered for a larger amount (e.g. R1.5m) enabling the buyer to access additional funds over and above what is needed to purchase the property. In this scenario and subject to a bank’s lending criteria, the owner would in future be able to apply for a further loan which could be managed directly with the bank without the involvement of the conveyancing process.

Should the owner qualify for such a loan, this amount will be paid out and secured by the already registered CCMB. It will therefore not be necessary to  register a further or second CCMB to serve as security for this loan.

This can be viewed as a sensible option as it significantly simplifies the process of gaining access to further finance in the future, and removes the added process and costs involved in registering a new loan. The amounts of CCMBs granted, however, will always be subject to the bank’s discretion and the valuation of the property.

Applying for a second mortgage

In a case where the loan amount and the CCMB are for the same amount, if the owner wishes to obtain further funds, the bank will, on approval of the loan, instruct their bond attorneys that a second CCMB be registered over the same property in order to serve as security for this loan.

The process of applying for a second mortgage will essentially be the same as when applying for a first CCMB although the sale and transfer of the property will not be applicable. Regardless of whether applying for the first or second CCMB, the loan will be subject to the specific bank’s lending criteria and policies, as well as the affordability of the owner (repayment ability) and the value of the property which would have to support such loan and security.

When applying for a second CCMB over an existing property, the owner must be aware that there will be further costs involved in registering this bond and the registration process in the deeds office will have to be followed as with the first bond. If the second bond is granted to a different mortgagee than the first mortgagee the consent of the first mortgagee will also have to be obtained.

Financing a second property

One of the considerations to be taken into account when buying a second property is the method of payment. Should the buyer have an existing property which is almost paid off, this property can be used as security for the loan to pay for the second property. For example, the bank can approve a further loan under the already registered CCMB over the first property which can then be used to pay for the second property, avoiding the need to register a further or second bond.

In addition, even once a property has been paid off in full, the CCMB will remain registered in the Deeds Office against the property until formally cancelled, offering a convenient means of accessing finance.

Written by Wessel de Kock

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