What Happens Upon Cancellation of a Home Loan?

Private Property South Africa
Anna-Marie Smith

The tendency to keep home loans running for extended periods after paying it in full is not uncommon. Industry specialists as well as consumers argue that the cost of registering a bond is not the overall reason for keeping home loans running. But rather the qualifying and application processes that follow.

Credit worthiness is viewed in an entirely different light than prior to the implementation of the New National Credit Act. As a result, bonds are kept open because although the financial status of applicants may well be regarded as ‘within good standing’ from banks’ perspective, some say they prefer to maintain previous home loans to avoid what can be an onerous and time consuming process.

Should that be the case, credit advisors say paying monthly bond fees despite loan money not being utilised may well be worth the option, but only if financial discipline be exercised through avoidance of unnecessary spending. Another benefit of this option is that both life and property insurance policies taken out against the bond at the time of registration, can be maintained after the bond has been paid up.

Once the decision is made to cancel a home loan it is advisable to first enquire about extended insurance as well as penalty fees payable upon cancellation. Provision has to be made for insurance payments to continue during the period that it might take for title deeds to be transferred into the owners’ names. This is followed by a written instruction from the account holder either to the bank or the transferring attorneys, with notice of the applicable date of cancellation to be agreed upon. Credits for underutilised amounts are issued by the banks after completion of the cancellation process.

The responsibility of registering a property into the name of the existing or new owner lies with conveyance attorneys. When a property is sold banks hand the title deeds to attorneys. At this time they also issue a guarantee of funds to the bank to assure that outstanding bond amounts are covered up to the date of cancellation. Bond cancellation fees are paid to attorneys, and upon receipt of such fees the title deeds are forward to owners or the attorneys of the buyers of a property. Both existing and new property owners via attorneys can only become recipients of title deeds after the entire financial process has been finalised and all moneys have been receipted.

Important to note is that when there are outstanding amounts due on home loans, such as when a property is sold before the bond is paid up, banks require approximately 90 days written notice to process the bond cancellation. Should this period be shorter, bond account holders are responsible for the finance costs that may be incurred upon cancellation. In the case of early settlement banks require knowledge of how outstanding amounts will be settled, such as from the proceeds of the sale of the house.

Financial advisors suggest prospective home loan applicants should investigate the detail around bond cancellation and relevant administration costs. Reason being, that in unforeseen circumstances the availability of a paid up home loan, in particular where a favourable fixed interest rate applies, may offer an unexpected solution.

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