Before the bond breaks

Almost from the day a new property owner signs on the dotted line they begin looking forward to the day the bond is fully paid up. And rightly so, a mortgage bond is one of the biggest financial commitments many make in their lifetime. 

"And of course, the sooner you pay it up the more you save in interest," says Michelle Cohen, Principal at Leapfrog Johannesburg North East.

But when the big day comes there are a few factors to take into consideration before closing your bond. In fact, you may not want to close the bond at all. Cohen explains how it all works. 

Closure is not automatic

It is important to note that the bank doesn't automatically close your bond account once the very last repayment amount is received. Cohen explains that the bond holder has to instruct the bank to do so and it is best practice to do so 90 days in advance. "Informing your bank of your intention to pay up the bond and close the account will help avoid paying a penalty on the bond cancellation, in addition to the bond cancellation fee that needs to be paid anyway." 

While every bank's exact process will differ slightly, the next step will see a cancellation attorney being instructed by the bondholder to cancel the bond at the deeds office. This instruction will incur a fee. 

Next the attorney will draw up a cancellation letter, which is lodged at the deeds office, together with the original title deeds and proof from the bank that the bond has in fact been paid up. 

If these documents are received in good order, the Registrar at the Deeds Office will place an endorsement in the title deed stating that the bond has been settled in full and cancelled. Once this is all done the bank will cancel the bond on their system and hand the title deeds over to the new, registered owner. "It is important to note that property owners can only request title deeds from the bank once the above processes are complete," Cohen says. 

"And then the next time somebody jokingly asks what you would save from your burning house, you say the title deeds! Seriously though, make sure to guard the title deeds in a safe place as you'll need them to transfer the property if you ever decide to sell," Cohen shares. 

But before you close that door...

Equally important to know is that you may not want to close your bond at all. "The option is available to keep your bond open with the idea that you have easy access to affordable credit, something that may be viewed as a 'rainy day' fund," Cohen says, " Further to this the brick and mortar insurance that you have on your property is usually added to the monthly bond payment to your bank. This ensures that if the structure of the property is damaged the bank insurance covers the claim. Make sure that if you do close the bond you have made provision for this insurance with a broker, and check that the monthly payment is not significantly higher than if you had kept the bond open and the insurance added with it.  

Ultimately though there is no obligation either way, to keep it open or close it entirely. "Mostly we find that the decision depends on the property owner's financial position and personal preference, though I always advise clients to make the choice in consultation with a financial advisor," Cohen says. 

As long as you keep paying the bank fees on the bond, the account will remain open. These fees tend to be quite low, particularly in relation to the amount of credit it potentially allows access to. "It is imperative though to not get into the habit of taking money from a paid-up bond as it remains credit and something that must be paid back - with interest," Cohen stresses.