Are you considering cancelling your mortgage bond or settling the outstanding amount due in respect thereof? Bear in mind, there is a difference between the two. When you “settle a bond”, you are repaying the total outstanding amount due in terms of your mortgage loan agreement. “Settling a bond”, however, does not automatically result in the cancellation of the mortgage bond. Cancellation of a mortgage bond involves a registration process at the Deeds Office and either happens simultaneously with, or subsequent to, the settlement of any outstanding amount.
Section 125 of the National Credit Act stipulates that financial institutions are entitled to receive 90 days’ notice from a client of their intention to cancel their mortgage bond. The penalty charge on early termination is equal to 90 days’ interest payable on the balance outstanding in the home loan. To avoid unnecessary charges, it is imperative to provide your lender with at least 90 days’ written notice of your intention to cancel the mortgage bond.
The penalty interest period will run from the date on which the bank receives notice of your intention to cancel the bond for a period of 90 calendar days, and the penalty amount will reduce every day until the 90-day period has lapsed. If your intention to cancel your mortgage bond was received by the bank more than 90 days prior to the date of registration of the cancellation of your mortgage bond in the Deeds Office, the early termination penalty charge will not be applicable.
If your bond is cancelled in the Deeds Office during the 90-day cancellation period, the early termination fee will be calculated on the remaining period. For example, if you gave notice on 1 March 2021 the penalty period will lapse on 29 May 2021 on which date the penalty interest will be zero. If your bond cancellation registers on or after 29 May, you will not pay any penalty interest to the bank. However, if your bond cancellation registers on 30 April, you will be liable for the balance of the penalty interest from 1 May to 29 May.
On cancellation of your mortgage bond, the outstanding balance and any early termination penalty will be paid to your bank by the bond cancellation attorney.
It is also important to remember that if you have an access facility on your mortgage loan agreement and you have given the bank notice of your intention to cancel the mortgage bond, the access facility will be “frozen” for that penalty period and you will not be able to access those funds.
Once the cancellation process is complete, the Deeds Office will record the cancellation of the bond. The cancellation of the bond will be endorsed on the Original Title Deed and sent to the lending bank as security.
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).