Considering cancelling your bond, or selling your property? Cancelling your bond early incurs financial penalties. Here’s what you need to know about the bond cancellation process, and how to minimize costs..
Step one: Submit a cancellation notice
Most bond originators and banks in South Africa require a 90-day written notice of your intent to cancel your home loan.
As part of the National Credit Act, banks and bond originators are allowed to levy a penalty fee if you cancel your bond before the end of the agreed upon loan period.
If you cancel your bond early (i.e. within a year or two of purchasing your property), banks and bond originators are allowed to levy a 1% penalty on the outstanding bond amount.These fees do not need to be paid upfront, and are subtracted from the total sales price once the property is sold.
This means that on a R1 million property, the penalty fee is R10 000.
Step two: Request your cancellation figures
A bond is only cancelled after a conveyancer requests your cancellation figures from your bank. This only happens once your property is sold, and is not dependent on the 90-day cancellation notice.
This means that you should submit your bond cancellation notice before putting your property on the market. If your property remains unsold after the 90-day period, all you need to do is resubmit your cancellation notice and have the notice period extended.
If no cancellation notice is given by the seller, the banks will consider the 90-day period to begin from the date that the conveyancer requests the cancellation figures.
Cancellation penalties are waived/not applicable under the following conditions:
- If the property is sold within a deceased estate
- If the property has been sequestrated
- If another property is purchased and a new bond taken out with the same bank
In some cases, if the transfer of the property occurs within the 90-day period, the cancellation fee is adjusted.
For example, if the property is registered on day 60 of the 90-day period, then the penalty will be reduced and the bondholder refunded, and if registration takes place on day 90, the penalty is waived.
For this reason, you can request that registration only occurs on or after the 90-day bond cancellation period has ended.
Cancelling your Bond Early
In some cases, usually because of a major financial setback, you may have to cancel your bond after application and approval, but before the transfer and registration of a property is finalised.
In these circumstances you may find yourself liable for the estate agent’s commission, and/or the conveyancer’s costs.
While the bank may be sympathetic, they are not under any obligation to review your financial status outside of the bond application process.
However, if significant time has passed between bond application and registration, the bank has the right to review your application and withdraw the loan if they feel that you will be unable to meet your repayment obligations.
The best option in these circumstances is to ensure, between application and approval processes, that you do not make any major financial commitments that could impact your ability to meet repayments on your bond.