What are bond cancellation fees?

If you are thinking about selling your home, you probably have a bond that needs to be settled, which could likely lead to a 90 day early termination charge.

The National Credit Act allows banks to process this fee if a seller gives notice of the intent to cancel their bond before the end of the conventional 20-year loan period. However, if you have a relatively new bond that you would like to cancel (within in the first two years), you would also be liable for a penalty interest of approximately 1% of the amount that you owe. This penalty will be applied once the house is sold and deducted from the proceeds of the sale.

Keep in mind that the 90's day written notice does not mean automatic cancellation of the bond at the of the period, it only represent the intention to sell your property and cancel your home loan. It is best to do this before you put your home on the market. If the home does not sell in that time, a new letter must be written to start the process again.

Only when a conveyancer requests the final figures from the bank, will the bond be cancelled - and this only happens after the property has been sold and the attorney has received all the required documents.

If you do not provide the required notice, the date the conveyancers request the final figures will be considered the start of the notice period. The cancellation fee will then depend on the time taken to register transfer of the property.

The rules

• The 90-day notice period may be waived by the bank if a new property is purchased and another bond is taken out with the same financial institution.
• Penalties are not applied for sequestration.
• Penalties are not applied for deceased estates.
• Where loans are cancelled within the 90-day notice period, pro-rata interest is charged on the remaining days.
• The notice period does not expire if cancellation instructions have been issued to the conveyancers.