Any bond holder intending to sell or cancel their home loan should take heed of the following information.

When the home loan is granted the normal period that the client will take to repay the bond is 20 years and the prevailing bond rate at that time will apply. The Usury Act permits a bond holder to make payments in addition to the stipulated monthly instalment at any time.

However, should the bond holder wish to pay the full outstanding balance of the loan in one amount prior to the due date (the bond has to be in the books of the bank for 3 years), the following provisions will apply:

• The bond holder is required to give the bank 90 days notice in writing of the date the payment will be made.

• The notice may not be given before the expiry of a period of 90 days from the date when the loan was registered.
• The act clearly stipulates that the bank has the right to have an account on their books for a minimum period of 180 days from inception i.e. 90 days have to lapse after registration of the bond and then 90 days notice, which should be furnished to cancel the bond within the 3 year period.

This allows the bank to recoup some of their origination costs as a result of the potential interest income that will be lost. It takes anything up to 3 years before a loan becomes profitable to the bank.

The early termination fee is not a penalty imposed by the bank, but a recovery of interest income, which is specifically provided for in legislation.

Accounts to which early termination would apply:

• When a bond is cancelled within the first 3 years after registration with effect from 1 October 2001.
• All home loans with a fixed or capped interest rate agreement.

This allows the bank to recoup some of their origination costs as a result of the potential interest income that will be lost. It takes anything up to 3 years before a loan becomes profitable to the bank.

Process to determine finance charges debited to your home loan account:

• 90 Days interest is calculated on the outstanding balance at day of notice.
• The provisional figure is added to the outstanding balance together with other allowances such as insurance/assurance and admin fees, etc.
• On final cancellation, the unexpired portion of 90 days interest will be charged and debited to the bond account, and will be due by the bond holder.

Refund of early termination interest charged:

• Should the customer take out a new bond with the bank within 6 months of settling the previous home loan account, the client needs to advise the cancellation department of the new account number.
• The refund will not be considered until the new bond is registered.
  To avoid early termination – give 90 days notice!

This information may be valuable to investors as they often buy off-plan and sell on once the project is completed, which means they have not paid a single bond repayment and penalty interest will apply. So, take heed of the above information to avoid these costs, or make sure you factor the cost into your new sale price.

Please note: This information may vary from bank to bank.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

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Johannesburg – There are subtle hints that the interest rate cut party may be over.

For one, central bank chief and monetary decision-maker Gill Marcus says so.

She recently warned that interest rates will probably remain unchanged for some time.

Interest rates are currently at the lowest levels in almost 30 years and many economists think the next move will be higher.

Although inflation moved back into the desired target range, inflationary pressures remain in the medium term, most notably the cost of energy – which would include electricity tariff hikes and fuel price increases, said Anton Gildenhuys, CEO of Sanlam Personal Finance.

“Consumers should not get too used to paying these lower rates because the direction is bound to change and the rates will start to go up. I estimate this shift could happen within the next 12 to 18 months.”

The prospect of higher rates may tempt many home owners to .

Most banks offer you the chance to keep your rate unchanged for a specified period (usually between one to 10 years). This means that when rates go up, you won’t be affected.

There is usually no cost involved, but you will pay a penalty fee if you want to get out of the fixed interest rate agreement early. Depending on the bank, the penalty can be a percentage of the outstanding balance or an amount equal to a couple of months’ interest.               

With First National Bank, for example, if you cancel the fixed rate agreement three months before the end of the contract – and you have an outstanding balance of R500 000, with a fixed interest rate of 12% – you will pay a penalty of R14 723.

After the fixed rate term, your interest rate will revert to the variable interest rate, unless you opt to renew the fixed agreement.

If you sell the property, or want to pay off the bond, you will need to give 90 days’ written notice – otherwise the bank will charge you an extra interest amount.

Apart from benefiting when rates go up, fixing your home loan rate can bring peace of mind.

You know exactly how much you will have to pay for a certain period, making it easier to budget. If you have a limited or fixed income, you won’t have to worry about the chance that rates will shoot through the roof, which may mean you will lose your house.

But there’s a catch.

The rate at which your home loan will be fixed will be higher than what you pay currently. The rate will depend on how long you want to fix it for, the size of your loan and the size of the loan relative to the value of the property.

Careful – you could end up paying more

The current prime rate is 10%, while Absa, for example is offering fixed rates of 10.50% (one year), 11.10% (two years)  to 14.50% (10 years).

If you just took out a home loan of R1m, and you pay the prime rate of 10%, you will pay R115 800 over the next year. If you decided to fix it for the next year on 10.50%, you will pay R4 000 more.

Currently rates offered by banks to fix rates over five or 10 years in particular are quite expensive, said Gildenhuys.

To fix rates for five years on a R500 000 loan and if the size of the loan relative to the value of the property is below 80%, you can expect to pay an fixed rate of about 12.9% per year. 

“Assuming that you currently pay prime, interest rates will need to increase by 3% or more before you will start to benefit,” says Gildenhuys.

“For you to benefit over the term that you fix rates, the prime interest rate will need to increase beyond the fixed rate within the next two years or so, otherwise you will still lose out over the total term of five years.”

And then there’s the risk that interest rates won’t budge – and may even come down.

Nedbank – although it is in the minority – believes that a fragile economic recovery, together with a decline in inflation and inflationary expectations, could strengthen the case for another cut in the third quarter.

You should only consider fixing your rates now if accurate budgeting for your mortgage payments over the next few years is absolutely essential, said Gildenhuys.

“Otherwise it is quite likely to be better for you to increase your repayments now to where a fixed rate repayment would be, thereby reducing your loan much more quickly, and creating some buffer for yourself should conditions worsen materially.”- Fin24

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za