Author: Matthew Davidse
Bond Cancellations will become relevant in one of two instances, either you would like to sell your home which is bonded, or you have settled your home loan in full.
It should be noted that even if you settle your home loan account, a mortgage bond will still be registered over your property in the Deeds Office. The relevant lending institution/bank will retain possession of your title deed, as well as any other security documents, and monthly service fees would remain payable to the bank for as long as the home loan account is kept open.
To cancel your bond in the Deeds Office, a bond cancellation attorney will be appointed by the applicable bank to attend to the cancellation of the bond registered over your property, once you have given the bank notice that you wish to cancel the bond. The bank will then issue bond cancellation figures, and those figures along with the bond cancellation fee charged by the appointed attorney will be become payable by you. Only once the bond is cancelled, will the bank release the title deed of the property to the owner thereof and any surplus funds in the home loan account will be refunded.
Similarly, if you wish to sell your property and a bond is still registered over it, you will first need to cancel same in the Deeds Office before transfer of your property to the purchaser can be registered. The costs involved in cancelling the bond will be for the seller’s account.
Should you sell your property within one or two years from purchasing it, you may incur a penalty charge for cancelling your bond early. The applicable penalty charge is equal to 1% of the outstanding balance of the home loan account and can be subtracted from the proceeds of the sale.
If you are still paying off your home loan but you plan to settle the balance of the loan prior to the end of the loan term, the first step would be to give notice to the relevant lending institution of your intention to settle and cancel your bond.
While it may differ from bank to bank, generally, a 90-days’ notice of the intention to cancel your bond is required by the relevant lending institution’s home loan department.
Written notice is most advisable as you can reliably furnish proof of the date upon which notice was supplied.
The purpose of giving adequate notice is to avoid an early termination fee being charged by the bank in terms of Section 125 of the National Credit Act 34 of 2005. The fee is equal to three months’ worth of interest that would have been payable by yourself on the outstanding balance of the loan (as at the date that notice was given).
The fee reduces each day as the 90-day notice period runs out, until such a date that the bond cancellation registers in the Deeds Office. Thus, if your bond is cancelled within the 90-day notice period, pro-rata interest is charged based on the number of remaining days left over of your notice period.
For example, should the bond cancellation and simultaneous transfer of the property be registered on day 45 of the 90-day notice period, the early termination fee is reduced by half (50%) and the remainder thereof is deducted from the proceeds the seller receives from the sale.
Should no notice be given at all, and the property is consequently sold, the transferring attorney would at that point send a letter to the bank requesting cancellation figures for the bond. The bank would at that date regard 90-days’ notice as having been provided. The 90-day period will then start running, and the early termination fee payable by the seller will reduce by each passing day until date of registration or until the 90-day period expires, whichever comes first.