Downside to shifting home loan
IF you are considering switching your present home loan from your existing bank to a new bank, which offers you a better rate and other advantages, you must remember that the standard home loan agreement has a clause reading something like the following:
![](https://images.caxton.co.za/wp-content/uploads/sites/68/2015/07/homeloa_652881375.jpg)
IF you are considering switching your present home loan from your existing bank to a new bank, which offers you a better rate and other advantages, you must remember that the standard home loan agreement has a clause reading something like the following:
Clause
The borrower is entitled to pay the outstanding balance of the principal debt mentioned in the Mortgage Loan Agreement and interest there on in one amount before the due date thereof subject to the following conditions: the borrower shall give the bank at least 90 days’ prior notice in writing of his aforesaid intention, stating the date on which the borrower intends to pay the outstanding balance of the principal debt and interest thereon in one amount to the bank.
The agreement further makes provision that if notice is given for less than 90 days, then the bank may charge a penalty interest also called an early termination fee. The interest percentage differs from bank to bank.
In a recent transaction, a bank charged 7,45% on the balance outstanding as penalty interest. The percentage also depends on how old the bond is. Younger bonds (shorter in existence) will carry a higher penalty interest rate than older bonds.
Banks’ policy has changed.
In the past, some banks were prepared to waive the penalty if you were still an existing client in another transaction or registered a new bond with the same bank.
We have been informed by one of the major banks that the bank’s policy has changed and the termination interest will be payable in all cases where the home loan is closed and the customers have failed to give 90 day prior notice of their intention of such closure. The interest will in no circumstances be waived, even if the customer brings his next bond to the bank.
In cases where customers give notice within a shorter time frame than 90 days, the interest calculation will be reduced by such period (i.e. if a client gives notice 30 days before account closure, he will only be liable for the remaining 60 day period – 90 days less actual days notice given).
If your property is sold, the existing bond will be repaid on date of registration of the transfer and once again the cancellation period comes into operation. To make the penalty interest period as short as possible it might be worth your while to inform the bank as soon as you have listed your property with the estate agent.
This can however be detrimental in the case of so called access bonds, as it might take a long time for the property to be sold and once you have given notice to the bank of termination your bond will no longer be accessible.
Article by Salomé van Wyk, a conveyancer at Millers Incorporated Attorneys