Cancelling your bond? What you need to know

Part 1

A Property24 Reader says he has the title deeds from the bank which he received after he paid up his bond, but now wants to sell the property and the bank wants to charge him R5000 for bond cancellation.

“Please inform me of the cost of cancelling a bond that has been paid up?” asks the reader.

Paying up and cancellation of the home loan:

Rob Kelso, CEO of SA Home Loans says once a client has settled the outstanding loan amount (capital and interest), the client may request for the cancellation of the bond and the return of the title deeds – whether or not he is intending to sell the property. “In this case, an appointed attorney will attend to the cancellation at the Deeds Office. The average cost to cancel a bond is currently approximately R5500 – which is payable to the attorney attending to this matter.

“However, this may vary depending on the attorney and on the number of further loans that may have been registered over the property over the term of the home loan. If the client has already settled the bond in full, there is no notice period required to cancel and no fees or charges are payable to the financial service provider,” says Kelso. 

Where a client knows he will be selling the property, Kelso says it is possible for attorneys to attend to the cancellation of the bond, and the transfer of the property to the purchaser simultaneously which can save a lot of time.

Selling of the property after title deeds are returned, and there is no mortgage bond:

Kelso explains that the seller will be liable for municipal rates and levies up until the date of sale, estate agent commission based on the purchase price, electrical compliance certificate, entomologist certificate, etc.

“The purchaser will be liable for attorney costs incurred to register the transfer of the property at the Deeds Office and to register a bond (if any). These costs would vary, we are therefore unable to approximate these associated costs,” says Kelso. 

Cancelling a bond is an inevitable part of homeownership, but you’re not alone if you have no idea what that process entails.

Leonard Kondowe, National Admin Hub Manager for Rawson Finance, walks us through the steps to follow and shares his tips on minimising costs and penalties along the way.

Step 1:

Submit your notice of intent to cancel

Unless your bond has reached the end of its term (normally 20 or 30 years), you’re going to need to provide at least 90 days written notice of your intent to cancel. Closing your bond before this notice period is up could incur penalty fees. (These are normally waived if the property is part of a deceased estate or has been sequestrated, or if you’re taking out a new home loan with the same institution.)

“To avoid early termination penalties, it’s always best to give notice to your lender as soon as you put your home on the market,” says Kondowe. “You can cover your bases even more thoroughly by including a clause in your sales contract that pauses registration – which triggers bond termination until the conclusion of your 90-day notice period. That way, if you sell quickly and the transfer goes faster than normal, you won’t end up having to foot an unexpected bill.”

Kondowe warns that your notice of intention to cancel may expire if your property fails to sell quickly. In this case, you’ll need to resubmit and start the process all over again.

“Expiration dates vary by institution. Some expire immediately at the end of their 90-day period, while others remain valid for as long as 6 months,” he says.

Good to know: Bonds cancelled very early – typically within a year or two of purchase – could be subject to an additional 1% penalty on the outstanding bond amount. If you absolutely have to sell this early in your ownership period, Kondowe suggests asking your bond originator to negotiate this fee with your lender if at all possible.

Step 2:

Request cancellation figures

Providing notice of intent to cancel a bond doesn’t actually trigger the cancellation process. This only happens when your conveyancer (or cancellation attorney) is instructed to request your cancellation figures. This can happen at a time of your choice if you’re closing your loan account of your own accord, or as soon as your property sells if it’s on the market.

Step 3:

Settle any outstanding amounts

Your lender will provide cancellation (or settlement) figures to your conveyancer. These show exactly how much you’ll need to pay to settle your remaining debt. If you’re cancelling your bond without selling your property, you’ll need to pay this out of pocket. If you are selling, this will be paid automatically from the proceeds of your sale as part of the transfer process.

“Remember, lenders, do charge interest on your outstanding balance from the date settlement figures are provided to the date the payment is received and the bond is officially cancelled,” says Kondowe. “This is unlikely to be much more than you would be paying on your bond anyway, so it shouldn’t be an additional financial burden, but it could cause some confusion if the final settlement figure differs slightly from the original figure provided.”

Important: If your Home Owners’ Comprehensive (HOC) insurance is debited from your home loan account, you’ll need to transfer the debit order to a different account before your bond is cancelled. Failure to do so could cause your insurance cover to lapse, leaving you in a sticky situation if anything goes wrong.

Step 4:

Pay cancellation fees

Lenders don’t normally charge bond cancellation fees other than (avoidable) penalties for early termination. However, you will need to pay the cancellation attorney for their services, even if your bond was fully paid up. (These fees may be included in the settlement figure provided by your lender if they contracted the cancellation attorney on your behalf.)

“It’s important to be aware that this cost is not part of the transfer fees covered by the buyer,” says Kondowe. “Bond cancellation fees are solely for the seller’s – or bondholder’s – account.”

Cancelling a bond is an essential step in most property journeys, but it can feel overwhelming when you’re doing it for the first time. Don’t be afraid to ask for advice from your bond originator, who can help you streamline the process and minimise fees and penalties while sourcing new finance options for your next property adventure.

Article courtesy of property24