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What happens when you pay off your home loan?

by | Oct 10, 2019

Home loan cancellationIf 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.

167 Comments

  1. HI Maya,

    Took a bond with FNB in 2017 and finished paying off the home loan early this year. I am intending to cancel the bond. In terms of cancellation fees you earlier indicated that you recently did one which cost around R4500. I want to find out is it FNB that provides the cancellation attorneys or I can get my own attorneys. Secondly are there 2 set of attorneys involve with the bond cancellation or just 1 set. I am asking so because when purchasing the property there were 2 sets of attorneys involves (inclusive of the bank attorneys) which I had to pay both.

    Reply
    • When you purchase a house there are two sets of legal actions – one is the conveyancer that transfers the house to your name. The buyer pays that fee. Then there is attorney who registers the mortgage over the property. The buyer also pays that. When you settle the bond, you only have the attorney fee to cancel the mortgage over the property.

      Reply
  2. Hi Maya

    We have 4 years left on our FNB home loan and have decided that we want to settle the bond to reduce our debt burden.
    We asked FNB for a settlement which we received advising that the settlement is only valid for that day and funds would need to be paid within the same day, REALLY!
    If we settle the bond, do we still pay the monthly installments?

    Reply
    • FNB is correct because interest is calculated daily – so the amount changes daily. But it should not vary too much. Keep in mind that if you want to close the facility a penalty may apply unless you give three months notice. Once your bond is settled you can keep the facility open but will have a R69 fee. Your installments will not continue unless you draw on the facility again

      Reply
      • Hi

        I have a question regarding my repayments on a settled bond, for example lets say my bond amount has been settled and i decide to keep it as a extra credit when needed now i borrow R100 000-00 again from it, will i have to pay the same amount each month as i have previously paid on my bond or will it be a reduced payment according to what i lend from the settled bond?

        Regards

        Reply
        • It all depends on the bank – each bank has a different structure when it comes to access bonds. Some maintain the agreed repayment and others reduce it based on the agreed term. Best to confirm with your bank first

          Reply
  3. Hi, I bought a property when I started working, by now I’ve paid off approximately half of the period and amount on the home loan (flexi). Obviously the title deed is now with the bank. Due to various factors I would most like sell the property. Would I be able to keep the bond open and continue to pay the outstanding monthly instalment if I would rather use the bulk of the money towards something else? The person interested in buying the property from me would be paying in cash, thus would request the title deed to be transfer to them as soon as the deal concludes. As per my understanding title deed will only be transferred when bond account is closed, or did I misunderstood.

    Reply
    • The mortgage bond is over the title deed so you have to settle the mortgage and close the facility in order to give the buyer the title deed. You can only have a mortgage bond against a property you own

      Reply
  4. Hi Maya, I bought (from a developer) a second property (R2M) for my retirement at the end of March 2024. The property was registered on my name on 26 July 2022. The home will be completed by the end of the this year. My current bond is settled but not canceled (FNB Flexi). I am planning to sell my current property (+/- R2.2M) and rent it (+/- R10 000/ Month) from the new owner until relocation in April 2024. I will settle the second bond (FNB Flexi) but not cancel it for future us. I will also let the retirement home (+/- R8 000 / Month) until February/March 2024. Does this make financial sense? What is the interest and Tax implications? Will it be allowed to settle an home loan with in 1 year after registration?

    Reply
    • The income you receive from renting out the retirement home would be taxable, you could deduct any interest you pay on the mortgage over that property as well as any running costs

      Reply
      • Evening Maya. If I access flexireserve funds after paying off the bond in a shorter period. Will I be charged interest on the money accessed and will my loan restart again
        Regards
        Thabo

        Reply
        • Yes, if you are using credit then you will pay interest on any outstanding amount. Your loan does not start again as you are still using the original credit facility. Remember that you still have to pay back the full balance within the original period. For example, if your original term was to end in January 2025 – you would have to repay any funds you access now by January 2025 as the credit facility and loan come to an end then.

          Reply
      • Good Day Maya
        I am considering canceling my bond. I have paid up my bond before the original term. I note I have access funds available. Will the access amount be credited to me after the cancelation (I do not have a Flexi facility on the bond).

        Reply
        • It is best to ask the bank directly. There will be costs to cancelling the bond as well

          Reply
        • This is FNB’s response:
          It’s not clear from the question if the ‘access funds’ consists of available credit, or if there is a credit balance on the account (i.e. extra has been paid in over and above the outstanding loan amount).

          If it is available credit then it will run off over the remainder of the term and will not be available once the home loan is cancelled.
          If there is a credit balance in your home loan those funds will be made available to you when you cancel the bond. Please note though that a credit balance does not attract any credit interest, so we advise that you withdraw those funds, bring your outstanding balance to zero, and place them in an interest-bearing account.

          Reply
          • Thank you for tbe reply. Much appreciated.

            Reply
  5. I have paid up up (settled) my home loan long time ago before the original loan term. I noticed that I have access amount of 92400.Is this amount due to me or is it the money that I can borrow from bank. I

    Reply
    • Best to check with the bank but it could be that you have a credit line available of that amount. If you pay off your home loan sooner, you still have the credit facility available for the term of the loan agreement.

      Reply
    • Hi I have a bond bought for R400000 with 11 years to go. Repayment is 4147.94 . I have been paying extra R1790 for the past seven years, interest is at 8.3 percent. What are the implications of this scenario. Thanks

      Reply
      • Best to ask the bank – they would have the correct amortization figures.

        Reply
    • Good Evening

      I paid off my home loan with FNB, a year in advance and requested them to keep the account open I will pay the service Fee every month. They insist that because it is paid up I must close the account. I am having quite a battle at the moment.

      Reply
        • I have managed to get an investment amount to pay off my house in 6 months instead of 20 years. What are the financial implications and what’s best?

          Reply
          • You should look at your home as a place where you live, not an investment. You do not want to be in a position where your bond is paid off but you have no investments to retire for example. Put together a proper financial that finds a balance between the two. One way could be to invest the amount you would have paid each month to the bond. https://mayaonmoney.co.za/2021/11/pay-off-my-bond-or-invest/

            Reply
  6. We have the FNB bond which was supposed to be paid up by October 2018. We continued paying the bond until end May 2022 and it had 42000 on prepaid. When we indicated that we want to get refund the bank claims we do not have the money. Please advise

    Reply
    • Please email me directly and I will send a query to FNB. I don’t understand how you would continue to pay into a bond that was fully paid off?

      Reply
  7. Hi Maya,

    I would like to settle my bond without reselling, what would the approximate bank/lawyers fees be?

    Reply
    • Ask the bank – it depends on a few factors. I recently did one for my mother and it cost R4500

      Reply
  8. Hi Maya,

    I have been paying extra on my FNB account, as of now have an outstanding amount which with last debit order from bank to be the last one.

    What I need to know, to settle this account, is it necessary to give bank 3 months notice or will the bank auto settle my bond taking into account what’s in my credit facility?, After the coming payment will bank make any further debit/service fees towards my bank account?

    Thanks in Advance

    Reply
    • You only have to give three months notice when cancelling the bond over the property. This is different to settling the home loan. But also ask the bank about the process

      Reply
  9. Hi Maya, I have just paid up my bond and decided to cancel as well. The attorneys are charging for x3 bonds (I have made 2 loans on my bond at the beginning). I didn’t expect this one coming. Is this correct?

    Reply
    • I am not sure how that works. I assume they are cancelling two bonds over the property? And then transferring the title deed back to you? I would suggest asking for the details

      Reply
      • All clear now. Yes, the cancellation attorneys have confirmed that I am being charged to cancel 3 bonds. Thanks Maya.

        Reply
  10. Hello

    My late father had a home loan with FNB, he settled the loan before its term but he was never given any settlement discount.

    Reply
    • Not sure what you mean by a settlement discount? You only pay the outstanding balance on settlement

      Reply
  11. Hi Maya

    I’ve just settled my Home Loan and canceled it. Spoke to the Attorneys today about my Title Deed. They say they’ll contact me as soon as they get a way forward from the bank. They mentioned that I have to fill a Refund Form. What is this Refund Form for?

    Reply
  12. Hi Maya

    We finished paying off our house years before the period, and would like to keep the bond open. It’s a Smart Bond with FNB. But they are saying that the installment needs to be recalculated as only the “normal balance was reduced” and not the capital amount. I see you mention that in case you want to keep the bond open, only the admin fee will be charged? What FNB is saying is a bit confusing so wanted to get your thoughts.

    Reply
    • That sounds confusing but what I think they mean is that your credit line decreases over time. For example, if you paid over the agreed period, in year 16 you may have had R100 000 left to pay off – that is what would be available of the credit line. If you had increased payments and paid the loan off in year 16, that credit line of R100 000 would still be available to you, but it reduces each year so that it reaches zero by year 20.

      Reply

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Maya Fisher-French author of Money Questions Answered

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