Consumer Information

Author : Millers Attorneys

90 Day Penalty Clauses in Bonds
[Prepared by: Salome van Wyk – Millers Attorneys – George Office

Whenever you sell your house and are required to cancel the existing bond, you must remember that the standard home loan agreement has a clause reading something like the following:

“The Borrower is entitled to pay the outstanding balance of the principal debt mentioned in the Mortgage Loan Agreement, and interest thereon, in one amount before the due date thereof, subject to the following conditions, viz –

the Borrower shall give the Bank at least 90 days` prior notice in writing of his aforesaid intention, stating the date on which the Borrower intends to pay the outstanding balance of the principal debt, and interest thereon, in one amount to the Bank”

The agreement further makes provision that if notice is given for less than 90 days 9or if not such notice is given at all) then the Bank may charge a penalty interest, also called an early termination fee. The interest percentage differs from Bank to Bank. In the past some Banks were prepared to waive the penalty if you were still an existing client in another transaction or registered a new bond with the same Bank, but one of the major Banks has already advised us that the Bank`s policy has changed and that “early” termination interest will be payable in all cases where the existing bond is cancelled, and where the customer has failed to give 90 day prior written notice of its intention, to do so. The interest will in no circumstances be waived, even if the customer brings his next bond to the Bank.

In cases where customers give notice within a shorter time frame than 90 days, the interest calculation will be reduced by such period (i.e. if a client gives notice 30 days before account closure, s/he will only be liable for the remaining 60 day period – 90 days less actual days notice given).

As such, to make the penalty interest period as short as possible it might be worth your while to inform the Bank as soon as you have listed your property with the Estate Agent. This can however be detrimental in the case of so called access bonds, as it might take a long time for the property to be sold and once you have given notice to the Bank of termination your bond will no longer be accessible.