When selling your property in South Africa or settling your home loan, one important step that often catches homeowners by surprise is bond cancellation. Understanding the bond cancellation process and the associated costs is crucial to avoid unexpected expenses and ensure a smooth property transaction. This article provides a comprehensive overview of bond cancellation and what you need to know to navigate this process effectively.

What is Bond Cancellation?

A bond or mortgage bond is a legal agreement between a property owner (the borrower) and a lender (usually a bank) that secures a loan against the property. Bond cancellation occurs when the outstanding balance of the home loan is paid off, and the bond is removed from the Deeds Office records. This typically happens when you sell your property or pay off your mortgage in full.

When is Bond Cancellation Required?

Bond cancellation is required in the following scenarios:

1. Selling Your Property: If you have an outstanding mortgage on your property and decide to sell, you must cancel the existing bond. This allows the buyer to take ownership of the property free from any claims by your lender.

2. Paying Off Your Home Loan: Once you’ve paid off your home loan, you may want to cancel the bond to remove the bank’s security interest in your property.

3. Refinancing: If you’re refinancing your home loan with another lender, the existing bond must be canceled, and a new bond will be registered.

How Does the Bond Cancellation Process Work?

The bond cancellation process involves several steps, usually coordinated by a conveyancer, who is a specialized attorney responsible for managing property transfers.

Steps in the Bond Cancellation Process:

1. Notification to the Bank:

   • If you intend to sell your property or pay off your bond, you must notify your bank in writing. Most banks require a notice period of 60 to 90 days before you plan to settle the bond. If this notice period is not adhered to, you may incur penalty fees.

2. Instruction to Conveyancer:

   • The bank will instruct a bond cancellation attorney (conveyancer) to handle the cancellation process. The conveyancer will obtain the original title deed and bond documents from the bank and prepare the necessary legal paperwork.

3. Settlement Figures:

   • The bank will provide the conveyancer with settlement figures, which include the outstanding balance of the loan, accrued interest, and any additional fees such as penalty interest for early settlement. These figures are valid for a specific period, usually up to the date of registration of the bond cancellation.

4. Preparation of Bond Cancellation Documents:

   • The conveyancer will draft the bond cancellation documents and ensure that all legal requirements are met. This includes preparing the cancellation agreement that will be lodged with the Deeds Office.

5. Lodgement with the Deeds Office:

   • Once the bond cancellation documents are ready, they are lodged with the Deeds Office alongside the property transfer documents (if applicable). The Deeds Office will then cancel the bond on their records, officially releasing the property from the lender’s security.

6. Final Payment and Registration:

   • After the bond is canceled, the final settlement amount is paid to the bank. The Deeds Office will register the cancellation, and the property is now free of the mortgage bond.

What Are the Costs Associated with Bond Cancellation?

Bond cancellation is not free of charge, and several costs are associated with the process. Understanding these costs will help you budget accordingly.

1. Bond Cancellation Attorney Fees

The bank appoints a bond cancellation attorney to handle the cancellation process, and you, as the borrower, are responsible for their fees. These fees are typically based on a fixed tariff and vary depending on the value of the bond being canceled.

Tip: Ensure that you get a quote from the bond cancellation attorney upfront so you can include this in your budget.

2. Penalty Interest

If you settle your bond before the agreed term, the bank may charge penalty interest. This is usually calculated as a percentage of the outstanding balance and applies when the required notice period (typically 60 to 90 days) is not provided.

Tip: To avoid penalty interest, notify your bank of your intention to settle the bond as early as possible.

3. Pro-Rata Interest

This is the interest accrued from the last bond payment date until the actual date of bond cancellation. It is included in the final settlement figure provided by the bank.

4. Early Settlement Fees

In some cases, banks may charge an early settlement fee if you pay off your bond within the first few years of the loan term. This fee compensates the bank for the loss of future interest income.

Tip: Review your original loan agreement to check for any early settlement clauses and fees that may apply.

How to Avoid Unexpected Bond Cancellation Costs

To avoid unexpected bond cancellation costs, consider the following tips:

• Plan Ahead: Notify your bank well in advance if you plan to sell your property or settle your bond. This will help you avoid penalty interest.

• Review Your Loan Agreement: Understand the terms of your loan agreement, including any clauses related to early settlement fees or penalty interest.

• Budget for Costs: Include bond cancellation fees in your budget when selling your property or settling your home loan. These costs can add up, so it’s essential to be prepared.

• Consult a Conveyancer: Work with a qualified conveyancer who can guide you through the bond cancellation process and ensure all legal requirements are met efficiently.

Conclusion

Understanding the bond cancellation process and associated costs is crucial for homeowners in South Africa. Whether you’re selling your property or paying off your home loan, being aware of these legal and financial aspects can help you avoid unexpected expenses and ensure a smooth transaction.

At Barter McKellar, our experienced conveyancers are here to assist you with bond cancellations and other property-related legal matters. We provide expert advice and support to help you navigate the complexities of property transactions with confidence. Contact us today to learn more about our services and how we can help you with your bond cancellation needs.