If you have been paying extra into your home loan and have settled it before the required date, you need to decide whether you wish to keep the bond in place or go through the cancellation process.
If you want to cancel the bond, then you will be required to give the bank 90 days’ notice of your intention.
According to Lee Mhlongo, CEO: FNB Home Finance, the bank will then assist you with cancellation, which involves providing final settlement figures as well as a consultation with bond cancellation attorneys, as the bond needs to be cancelled in the Deeds Office. If you are cancelling the bond your attorney will work with the bank to return your title deed to you. Attorney fees will apply.
Listen to Maya and Mapalo Makhu discussing this and other topics in the My Money, My Lifestyle podcast.
You do have the option to keep the bond in place as a line of credit. In this case the bank will retain the title deed. It is important to note that you only receive the title deed when you cancel the bond, and not when it is paid off.
Mhlongo says if you are simply paying it off and not cancelling, no notice is required. “You are able to transfer any funds into your home loan at any time, saving yourself interest, and if you have a Flexi facility from FNB, you can access those pre-paid funds immediately should you need them.”
According to Mhlongo, to keep your home loan open, simply don’t cancel it and you will continue to have access to any prepaid funds via your Flexi facility or access bond. Keep in mind that you will pay a mnthly service fee, normally R57.50 for home loans that fall under the National Credit Act. This then means that you delay your cancellation to a later date, either when you want to sell or at the end of your 20-year term.
What is the difference between a home loan and a mortgage bond?
Mhlongo says these are practically the same thing. There is a slight difference in that the home loan is the credit facility that the bank grants, while the mortgage bond refers to the legal agreement that is in place (the bond is registered at the Deeds Office), but for all practical purposes they are the same thing.
Fallacy of a 20-year home loan
There is a common misperception that you can only take out a home loan over 20 years. This is not true. You can ask your bank for a period as short as five years, provided you can afford the monthly repayment over that shorter period. So, if you are buying a property for R500 000 and you can afford nearly R11 000 a month, then you can finance it over five years. If you want to give yourself some flexibility you can opt for a ten-year repayment period but aim to pay it off over five years.
This article first appeared in City Press.