Cancelling your bond early? Here's what you need to know.

A typical home loan in South Africa has a lifespan of 20 years, but that doesn't necessarily mean you'll be living in that home or servicing that debt for the full 20 years. Jawitz Properties takes a look at what goes into cancelling your home loan if you decide to sell your property or come into the means required to pay it off early.

The process of cancelling a bond

The first thing you need to know about the process of cancelling a bond is that you'll need to give the bank 90 days' notice. Providing this notice can help you avoid certain early termination fees. Typically, a homeowner will notify the bank of their intention to cancel their home loan as soon as they put their property on the market. Giving notice does not mean that the bond will automatically be cancelled on day 90 - it simply informs the bank of your intention to terminate your loan. If you intend to pay off your loan by selling your property and have not done so within the 90 days, you'll need to restart the process by notifying your bank again.

The second step in the bond cancellation process is requesting your cancellation figures, which a conveyancer will do on your behalf. If you are selling your property, this step will only take place once you have successfully found a buyer and signed on the dotted line. If you have an access bond facility, it will be suspended as soon as the cancellation figures are issued.

When your bond is successfully cancelled, your cancellation attorneys will pay the bank the amount specified in the cancellation figures. Any money left over will be refunded to you and your home loan will then be closed.

Bond cancellation penalties

While the various banks may differ slightly in their rules, settling your bond early is likely to make you liable for a 90-day termination charge, and this is allowed by the National Credit Act. In addition, if you are cancelling your bond within the first year or two after signing on the dotted line, you may also find yourself liable for penalty interest of approximately 1% of the amount outstanding on the loan. As an example, if the amount outstanding on your bond is R800 000, then a penalty of R8 000 will be payable.

There are always exceptions to the rule. If you are selling your property in order to buy another one - and you take the loan for your new home with the same bank that your old one was with - then it is likely that certain fees will be waived. These penalties are also not applied to sequestered properties or deceased estates.

Cancelling a bond if you're not selling the property

If you've reached the milestone of being able to pay off your bond without selling your property, you will need to cancel the bond in order to obtain the title deed to your property. In this case, the only fee payable will be a cancellation fee, which is paid to the cancellation attorney. You can typically initiate this process by calling or visiting your bank. If you have an access bond facility, it's worth considering the value of keeping your home loan open, especially if you have paid it off with several years to go. Your access bond will typically give you cheaper access to credit than you would be able to get through a different type of loan.

If you're looking to cancel a home loan or enter into any real estate transaction, Jawitz Properties is here to help. Our #RealPartners have decades of experience in helping people buy and sell property. Contact us today.