Explaining Second Bonds and Further Bond Loans
Second bonds, or further bond loans, refer to a form of bond lending where home owners pledge their home equity as collateral against a line of credit (also sometimes referred to as a home improvement bond). ooba bonds and Better Bond, for example, have packaged second bonds as ‘further loans', and offer bond customers the ooba credit card (oobacard) – a home improvement credit card that automatically entitles the cardholder to awesome discounts on household items and home improvement services.
CAUTION: When a homeowner applies for a second bond or a ‘further bond', they pledge their own bond equity (the portion of the bond they've paid off) as surety that they will repay the loan amount. Under extreme circumstances, failure to repay a second bond loan could lead to repossession of the homeowner's property, or force them to sell the property in order to settle the additional debt.
This is clearly not ideal, and effectively means that using second bonds or further bond loans to address short to medium-term cash flow problems is risky… They are also not recommended as income supplementation solutions for the elderly, as they tend to be very expensive as lines of credit, as elderly homeowners may well outlive their second bond loan's ability to support them.
Should this happen, the property may need to be sold to repay the principal debt and interest charges, leaving the pensioner assetless and homeless at a very vulnerable point in their lives…