Do you have a home loan over your current property? Are you selling or thinking of selling? Are you aware that if you cancel (or ‘terminate’) your home loan early without giving your bank notice you are obligated to pay “Early Termination” penalty fees?
No? Well, you do. So keep reading to potentially avoid paying unnecessary fees!
“Early Termination” of a loan is said to occur when:
You decide to settle the amount owing on the loan in one lump sum or sell the property AND
The bond is cancelled before the due date of the final installment AND
You did not provide the bank with 90 days written notice of intention to terminate the bond.
The fee itself is determined as three months’ interest, calculated on the outstanding balance of your loan, based on the interest rate applicable to your loan and the remaining loan term. This can add up to a sizable amount!
How to avoid this fee:
To avoid this fee you will, when selling your bonded property, need ensure that the bank has received 90 days written notice of your intention to sell the property and settle or cancel or terminate your home loan. When selling this notice is usually automatically given by the attorneys attending to the transfer of your property from your name into the name of your buyer, but it is a good idea to make sure!
And if you’ve came into some money (through lottery winnings, pension payouts or inheritance) and wisely decided to use it to pay off your home loan then this same 90 day notice period applies as does the Early Termination penalty if you do not give adequate notice. In this case it would be entirely your responsibility to give the 90 days written notice.
To cancel your bond at the ‘Big 4’ (in home loans at least) banks, you will need to give notice of your intention to cancel via the following channels:
Standard Bank – 0860 123 001
ABSA – firstname.lastname@example.org
FNB – 087 730 1144
Nedbank – email@example.com
Make sure you have your bond account number and other personal details handy and quote them in any written correspondence. And keep the banks acceptance of your notice in case a dispute arises!
Important things to remember:
In the event of cancellation, cancellation attorneys will be appointed by the bank. If you are cancelling your bond independently of selling your property these attorneys will contact you directly to arrange the payment. In the event of a home loan cancellation due to a sale these cancellation attorneys will liaise with the transferring attorneys. The cancellation attorney will provide the details regarding the final amount outstanding that would need to be paid to fully settle the loan. This outstanding amount includes the capital amount, interest and, in some cases, insurance.
In addition to this amount payable to the bank the cancellation attorney will charge you a, relatively, small fee to cancel the bond. This fee is payable to the attorney and is entirely separate from the payment to the bank. This attorneys’ fee is unavoidable when a bond is cancelled.
This notice is valid for between 3 months and 1 year (depending on your bank) allowing you some time to move the funds around or secure the sale of the property. If the home loan has not been settled after 1 year you will have to give notice again to avoid the Early Termination Penalty.
If you have paid off your bond (but will not be cancelling it) and wish to keep your Access Facility open, it is necessary to transact on this account at least every 6 months to keep the account active and to maintain access to these funds.
If you need any further assistance or have any questions drop us an email!