Calling time on your bond: Here is what you need to consider before cancelling
Whether you’re planning to sell your property or you’re interested in paying off your home loan early, there are various legal requirements and costs associated with cancelling a bond. While it may come as a surprise, a home loan is not automatically cancelled when the outstanding balance is settled. Jawitz Properties has put together a comprehensive guide to bond cancellation, providing clarity on every aspect of this exciting time in your life.
This guide unpacks what homeowners should know before calling time on their bond, from giving notice of intent to cancel and understanding the cancellation process, to closing a paid-off home loan account and considering the benefits of keeping an access bond open.
Intent to cancel
In line with the National Credit Act, a seller is required to provide the bank with at least 90 days’ notice of their intention to cancel their bond. If you do not adhere to this requirement, you may be required to pay penalty interest – which can amount to around one month’s bond instalment for each month’s notice not given. There are exceptions to this rule though: the penalties are generally waived if the property owner is being sequestrated, if the property is part of a deceased estate or if you are registering a new home loan with the same financial institution.
The home loan cancellation process
Although it may seem simple, cancelling a home loan involves several important steps before the bond is formally removed from the property.
- Notifying the bank and appointing a conveyancer: The first step towards cancelling your home loan is to get hold of the financial services provider with whom it is registered. Once you notify them that you intend to cancel your home loan, they will appoint a conveyancer to proceed with the legalities.
- Getting the settlement figures: This conveyancer (who is also commonly called a “cancellation attorney”), will receive settlement figures on your home loan amount. These figures show the total amount needed to settle the home loan in full, including the outstanding balance, interest owed and service fees.
- Preparing the home loan cancellation documents: The conveyancer will then draft cancellation documents, ensuring that all relevant legal requirements are met.
- Deeds office lodgement: When the bond cancellation documents are ready, the attorney lodges them with the Deeds Office, together with the property transfer documents if you are simultaneously selling your property. The Deeds Office will then cancel the home loan on their records, thereby releasing the property from the bank’s guardianship.
In transactions where a property is being transferred to a new owner and/or a new bond is being registered at the same time, the bond cancellation attorney works closely with the transferring attorney and the new bond attorney. This helps ensure that the process runs smoothly for everyone.
Closing a paid-off home loan account
When your home loan has been paid off, the title deed does not automatically get issued to you – you’ll need to go through the process of cancelling the home loan. The good news is that the bank doesn’t charge fees for cancelling a home loan that has been paid in full. In this case, the bank will still need to appoint a cancellation attorney, and you will need to pay a fee for their services. Once these fees have been paid, you will receive the title deed to your home.
The advantages of keeping an access bond open
Cancelling your bond is undoubtedly a milestone, but it may not be the most financially savvy move, even if you have managed to pay off the outstanding balance while there are still several years remaining on the loan. Keeping an access bond open after it has been paid off provides significant financial stability, allowing you to treat your home loan as a low-interest credit facility and a savings tool. A certain amount of the paid-off funds in an access bond will remain available to you, giving you access to funds for unexpected expenses – and even expected ones, since the interest rate on a home loan is far more preferential than other credit types.
The Jawitz Properties team is here to provide advice around every aspect of buying and selling real estate – from the day you get your home loan to the day you make your final payment. Get in touch for more information about bonds or any other aspect of South African real estate.