For the majority of buyers, purchasing a property is inevitably paired with receiving a home loan through a financial institution. And while there is much to be said for making additional or higher repayments to reduce interest, it is also worth understanding the requirements and expectations of adjusting the bond term.
As a general rule, the standard mortgage loan agreements used by major mortgage lenders in South Africa dictate that a customer may settle the amount outstanding on a loan agreement in full, with or without advance notice to a lender.
The important thing to bear in mind though, is that these agreements and the detail of the terms contained within them may vary from institution to institution. While some mortgage lenders may allow customers to pay off the remainder of the loan at any stage, some may require notice prior to doing so. Should a notice period be required, it is important to comply with this to avoid additional costs in the form of a termination fee.
Should insufficient notice be provided based on the agreement, the termination fee will typically equate to the value of the interest applicable to the loan for three months, minus the notice given by the customer. Termination fees are most commonly applicable when settlement of the loan takes place within six months or one year from the time the loan was taken up. However, it is worth paying attention to the detail of the loan agreement prior to signing to be sure of the expectations, particularly if the intention is to pay off the loan faster than required.
In addition to a termination fee, there are additional fees which are often overlooked when customers aim to settle a home loan. The settlement amount will include the unpaid balance on the principal loan, as well as unpaid interest charges, fees and insurance premiums payable up to the settlement date.
The total amount will be calculated by the relevant financial institution and, to ensure you are fully aware of the settlement payable and that the accurate amount is paid, it is advisable to contact the institution in advance. They will calculate and inform you of the total amount payable.
There will also be bond cancellation costs due at the time of settlement and, only once these have been paid in full, will the title deed be released to the customer.
As is often the case, a careful and detailed understanding of the contract at the time of signing is essential to be comfortable with the terms of the agreement. In addition, it is often beneficial and advisable to seek legal guidance when managing this process to be confident that your property and finances are in good hands.