When selling a property, Sellers often forget about the so-called “hidden costs” relating to bond cancellation. If your property is bonded when you sell it, your bond will need to be cancelled simultaneously with registration of transfer of the property into the Purchaser’s name. There will be bond cancellation fees payable by the Seller, as well as “additional charges” from the bank. In terms of the mortgage loan agreement concluded between the client and the bank in respect of the bond registered over the property, most financial institutions include a provision relating to early settlement/termination of the mortgage loan (also commonly known as “penalty interest”).
In terms of section 125 of the National Credit Act, a consumer is entitled to settle a credit agreement at any time, with or without advance notice to the credit provider, and the amount required to settle a credit agreement is the total of the following amounts:
For Example:
You have a bond of R 500 000.00 registered over your property. When you sell your property, you have paid your bond amount down to R 377 394.30 (this is the capital amount outstanding) and the interest rate applicable to your loan is 8.25%. You give the bank notice of your intention to settle your bond on 18 May 2018. When you give the bank notice that you intend to cancel your bond, the bank is entitled to charge penalty interest which will be calculated as follows:
| Capital amount outstanding multiplied by your interest rate of 8.25% | R 377 394.30 x 8.25% = R 31 135.03 | Interest on the capital amount per annum |
| Interest on capital per annum divided by 365 days | R 31 135.03/90 days = R 85.30 | Interest on capital amount per day |
| Interest on x 90 | R 85.30 x 90 days = R 7 677.00 | Penalty interest amount |
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. For example, if you give notice on 18 May 2018 the penalty period will lapse on 15 August on which date the penalty interest will be zero. If your transfer and bond cancellation register on 15 August you will not pay any penalty interest to the bank. However, if your transfer registers 29 July, you will be liable for the balance of the penalty interest from 30 July to 15 August (17 days), which will amount to R 1 450.10.
Most transfers take +/- 6 weeks to register (around 42 days), which means in most cases the Sellers are liable for at least half of the penalty interest levied by the bank. This amount gets deducted from the Seller’s proceeds on registration of transfer.
If you intend on selling your property, it is wise to notify the bank of your intention to settle the amount owing under the bond to allow the period to start running. Then, when the property is sold, a portion of the penalty period/amount would have lapsed/reduced.
Please note however that if you have an access facility on your bond and you give the bank notice of your intention to cancel the bond, the access facility will be “frozen” for that penalty period, so if you need access to those funds, make sure you withdraw the funds prior to giving notice.
For more information and advice on bond cancellation costs, please contact Nicole Deschamps at nicoled@rushmere.co.za
Disclaimer
This article is not intended to provide legal advice; it is for general information purposes only and to provide a general understanding of the law. It is advisable that advice relating to the specific circumstances of your matter be sought from an attorney before acting upon the content of this article. This article is written at a particular point in time and accordingly may not always reflect the most current legal developments, legislation and/or judgments which may be applicable from time to time. The author and/or Rushmere Noach Incorporated are not responsible for any errors or omissions in the content.
