Giving notice to cancel your bond
A prospective seller can give notice to the bank of his intention to cancel the bond prior to actually selling the property. This notice then activates the so-called penalty period during which time if the bond is cancelled, the seller will be liable for penalty fees. While the common penalty period is 90 days, this may vary so it is important to look at the loan agreement to determine the length of notice to be given to avoid these penalty fees.
The bank will calculate the penalty fee based on the outstanding amount due from the date on which the notice was given (and confirmed by the bank that they have received it) or when the transfer attorneys request bond cancellation figures if no notice was given. Again, this may vary from bank to bank.
Once the property has been sold, the appointed transfer attorneys will request the bond account number from the seller which will be used to request cancellation figures from the bank. The bank will then issue the cancellation figures and will appoint the bond cancellation attorney from their panel of attorneys who will process this cancellation.
Fees and costs included in cancellation figures
While all banks differ and this should not be taken as an exhaustive list, these are the common items that are typically included in the cancellation calculation:
- Outstanding balance due on the mortgage bond
- Interest on the outstanding balance, calculated from date of issue of the bond cancellation figures or from the date on which the penalty period expires
- Early settlement fee also known as the penalty fee
- Extra debit order payments
- Bank service fee
- Legal fees
- Life assurance premium (if taken with the bank)
- Homeowners comprehensive insurance premium (if taken with the bank)
The bond cancellation figure does not include the bond cancellation attorney fee which will depend on the number of mortgage bonds to be cancelled.
Cancellation figures based on registration date
Because it is near impossible to accurately predict the precise date on which registration will take place, and therefore the date on which the seller’s bond will be cancelled, it may well be the case that the cancellation figures provided, and therefore the amount payable by the seller, will exceed the amount actually due once the transfer process has been completed.
It is important to note that sellers must continue to pay their monthly bond instalments until the date of registration. Failure to do so may result in short payment to the bank on registration and may also affect the seller’s credit rating for future lending.
In accordance with the cancellation figures issued by the bank, the amount payable by the seller to cancel their bond will include interest on the outstanding balance as well as the penalty fees.
The bank will refund the seller any excess payment made, as well as any amounts paid towards the bond that exceed the cancellation amount. This refund will be paid into the seller’s elected account, as indicated on the refund information sheet which the seller will sign during the course of the transfer.
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