Cancelling your bond? What you need to know…

Most homeowners selling their properties have a registered bond that needs to be cancelled with the financial institution that originally financed their purchase. What most homeowners do not realise is the implication of early termination of the bond and the amount of penalties imposed by financial institutions for the early termination. The cost for cancellation and early termination is for the account of the seller and therefore it is important for the seller to understand exactly what is required to reduce his or her risk.

In terms of the National Credit Act, financial institutions are entitled to charge an early termination penalty should the seller wish to cancel their bond prior to the completion of the term of the bond. The aforementioned charge or penalty depends on the specific terms of the credit agreement between the seller and the specific financial institution.

It is important for homeowners to remember that giving notice to the bank of your intention to cancel and the actual cancellation of the bond are 2 different things. Giving notice only starts the process of calculating the penalty interest but the bond must physically still be cancelled in the Deeds Office. This process will be initiated by the bank giving instruction to a conveyancer to attend to the cancellation.

If registration takes place after the 90 day notice period, the penalty will fall away.  If registration of the transfer of the property falls within the 90 day time period, the penalty will be reduced pro-rata to the time left on the notice period.

WHAT STEPS DO YOU NEED TO TAKE TO CANCEL YOUR BOND?

1. The moment you put your property up for sale proceed to give written notice to your bank of your intention to sell and to cancel your bond. The notice can be done telephonically but we advise clients to have written confirmation of same in case the date of notice is disputed at a later stage.
2. Confirm with your bank what their exact process is regarding notice i.e. do you give a once off notice and after the 90 days no penalties are charged or do you need to give notice every 3 months if the property hasn’t sold yet?
3. Check whether your original credit agreement corresponds with the process indicated by the bank.
4. The bank will instruct an attorney to attend to the cancellation of the bond. If the bond is on a R0,00 balance and not linked to a transaction, the attorneys will contact you and proceed with the cancellation.  If there is still a balance outstanding and the cancellation is linked to the sale of your property, the attorneys will be in contact with the attorneys attending to your sale.
5. Remember that once you give notice to the bank, most banks put a hold on your access facility (if applicable). So it is advisable to withdraw any access funds that you may need prior to cancellation of the bond before same are frozen.

Contact our office should you require any assistance to cancel your bond and we will notify the relevant bank accordingly – 021 824 2020 or info@smutsco.co.za

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)