Mrs Brown bought a house and registered a mortgage bond in favour of Bank X to finance the sale. She also opted for the home-owners’ insurance, an option provided by Bank X to insure the property against damages as a requirement of the home loan. After a period of 20 years Mrs Brown has finally paid the last outstanding instalment on her home loan. Mrs Brown felt relieved to finally own her home free from any debt.
A few months later, Mrs Brown receives a statement from Bank X which reflects outstanding bank service fees and insurance premiums on her home loan account. She is confused and angry because according to her the loan has been paid and now she apparently owes money again. Mrs Brown goes to Bank X to sort out the apparent misunderstanding. Bank X informs her that although she paid her final instalment a year ago her home loan account is still active. She never cancelled her mortgage bond and as a result she is still liable for the monthly service fees and insurance premiums.
Mrs Brown must now decide whether to cancel the mortgage bond and close her account or keep the account open.
Where the full term of the home loan period is reached and the account reflects a zero balance and the owner elects to keep the home loan open, the owner should be aware that monthly bank service fees as well as the insurance premiums (if applicable) will be levied by the bank for as long as the account is open. The bank incurs costs both for managing the home loan accounts and providing the home owners insurance cover in respect of the property and will charge the owner for such costs.
On the other hand, should the owner decide to cancel the mortgage bond, the owner should note that a bond cancellation fee (generally between R2,500-R3,000) will be payable to the bank’s bond cancellation attorneys to cancel the bond. If the client elects to cancel the bond, the bank will give instructions to its cancellation attorneys and will send the original title deed and mortgage bond to the attorneys to proceed. The attorneys will draw up the cancellation letter and lodge it together with the original title deed and mortgage bond in the Deeds Office. The Registrar of Deeds will place an endorsement on the title deed which serves as proof that the bond has been paid up and cancelled, and upon confirmation of cancellation, the bank will close the home loan account.
A good reason to keep the home loan account open could be that the owner would have access to relatively cheap credit as the owner will save on the cost of having to register a new home loan in the future should he wish to apply for a further home loan from the bank. The process would then be faster than the initial bond registration process and the bank would continue to keep the mortgage bond and title deed in safe keeping. Banks have to provide annual statements and notifications of rate changes on home loan accounts, so should the owner decide to keep the account open, he will be able to monitor his costs and compare this to other forms of financing or insurance.
If the owner has cancelled the mortgage bond and wishes to take another home loan in the future, this process would be regarded as a new home loan and a new mortgage bond will have to be registered with its associated costs.
Mrs Brown accordingly has two options: she can keep her home loan account active and pay the service fees and insurance premiums which will provide her access to credit in the future and continuing insurance cover on her home, or she can cancel her home loan and save on the service fees and if she ever needs money again, register a new home loan.