How to cancel a bond

Cancelling a bond is an inevitable part of homeownership, but you’re not alone if you have no idea what that process entails.

Here are the steps to follow, and tips on minimising costs and penalties along the way.

Step 1: Submit your notice of intent to cancel

Unless your bond has reached the end of its term (normally 20 or 30 years), you’re going to need to provide at least 90 days’ written notice of your intent to cancel. Closing your bond before this notice period is up could incur penalty fees. (These are waived if the property is part of a deceased estate or has been sequestrated, or if you’re taking out a new home loan with the same institution.)

To avoid early termination penalties, give notice to your lender as soon as you put your home on the market.

You can cover your bases even more thoroughly by including a clause in your sales contract that pauses registration – which triggers bond termination – until the conclusion of your 90-day notice period. That way, if you sell quickly and the transfer goes faster than normal, you won’t end up having to foot an unexpected bill.

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Be warned that your notice of intention to cancel may expire if your property fails to sell quickly. In this case, you’ll need to resubmit and start the process over. Expiration dates vary by institution.

Good to know: Bonds cancelled very early – typically within a year or two of a purchase – could be subject to an additional 1% penalty on the outstanding bond amount.

Step 2: Request cancellation figures

Providing notice of intent to cancel a bond doesn’t actually trigger the cancellation process. This only happens when your conveyancer (or cancellation attorney) is instructed to request your cancellation figures.

This can happen at a time of your choosing if you’re closing your account of your own accord, or as soon as your property sells if it’s on the market.

Step 3: Settle any outstanding amounts

Your lender will provide cancellation (or settlement) figures to your conveyancer. These show exactly how much you’ll need to pay to settle your remaining debt.

If you’re cancelling your bond without selling your property, you’ll need to pay this out of pocket.

If you are selling, this will be paid from the proceeds of your sale as part of the transfer process.

Remember, lenders do charge interest on your outstanding balance from the date settlement figures are provided to the date the payment is received and the bond is officially cancelled.

Important: if your comprehensive insurance is debited from your home loan account, you’ll need to transfer the debit order to a different account before your bond is cancelled to prevent your insurance cover to lapse.

Step 4: Pay cancellation fees

Lenders don’t normally charge bond cancellation fees other than (avoidable) penalties for early termination. However, you will need to pay the cancellation attorney for their services, even if your bond was fully paid-up.

It’s important to be aware that this cost is not part of the transfer fees covered by the buyer. Cancellation fees are solely for the seller’s – or bondholder’s – account.

Don’t be afraid to ask for advice from your bond originator.

• By Leonard Kondowe

• Kondowe is national admin hub manager for Rawson Finance

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