How to terminate a mortgage without penalties

Canceling a bond is an inevitable part of home ownership, but you’re not alone if you have no idea what this process entails.

Leonard Kondowe, National Admin Hub Manager for Rawson Finance walks us through the steps and shares his tips for minimizing costs and penalties along the way.

Step 1: Submit your Notice of Intent to Cancel

Unless your bond has reached the end of its term (normally 20 or 30 years), you will need to provide at least 90 days written notice of your intention to cancel. Closing your bond before the end of this notice period could result in penalty charges.

These are usually removed if the property is part of a deceased estate or has been placed in receivership, or if you take out a new home loan from the same institution.

“To avoid early termination penalties, it’s always best to give your lender notice as soon as you put your home on the market,” Kondowe said. “You can cover your bases even more in-depth by including a clause in your sales contract that suspends registration – which triggers termination of the bond – until the end of your 90-day notice period. That way , if you sell quickly and the transfer goes faster than normal, you won’t have to pay an unexpected bill. »

Kondowe warned that your Notice of Intent to Cancel may expire if your property does not sell quickly. In this case, you will need to resubmit and start the process over.

“Expiry dates vary by institution,” he said. “Some expire immediately at the end of their 90-day period, while others remain valid for up to 6 months.”

  • Good to know: Bonds canceled very early – usually within a year or two of purchase – could be subject to an additional penalty of 1% on the amount of the outstanding bond. If you absolutely must sell this early in your ownership period, Kondowe suggests asking your bond originator to negotiate this fee with your lender if possible.

Step 2: Request override digits

Providing a Notice of Intent to Cancel a bond does not actually trigger the cancellation process. This only happens when your transfer agent (or cancellation attorney) is responsible for requesting your cancellation numbers. This can happen at a time of your choosing if you close your loan account on your own, or as soon as your property sells if it’s on the market.

Step 3: Settle outstanding amounts

Your lender will provide cancellation (or settlement) figures to your transfer agent. These show exactly how much you will need to pay to settle your remaining debt. If you cancel your deposit without selling your property, you will have to pay this out of pocket. If you sell, this will be paid automatically from the proceeds of your sale as part of the transfer process.

“Remember that lenders charge interest on your outstanding balance from the date settlement figures are provided until the date payment is received and the bond is officially released,” Kondowe said. .

“It’s unlikely to be much more than you would pay on your deposit anyway, so it shouldn’t be an additional financial burden, but it could be confusing if the final settlement figure differs slightly from the initial figure. provided.”

  • Important: If your Homeowners Insurance (HOC) is debited from your home loan account, you will need to transfer the debit order to another account before your deposit is cancelled. Failure to do so could cause your insurance coverage to expire, leaving you in a sticky situation should anything go wrong.

Step 4: Pay cancellation fees

Lenders generally do not charge bond cancellation fees other than (avoidable) penalties for early termination. However, you will have to pay the voidance attorney for their services, even if your bond has been fully released. These fees may be included in the settlement amount provided by your lender if they have engaged the rescission attorney on your behalf, Rawson said.

“It is important to be aware that this cost is not part of the transfer fee covered by the buyer,” Kondowe said. “Bond cancellation fees are solely for the account of the seller – or the bondholder.”

Canceling a bond is an essential step in most real estate journeys, but it can feel overwhelming when you do it for the first time. Don’t be afraid to seek advice from your bond originator, who can help streamline the process and minimize fees and penalties while researching new financing options for your next real estate adventure, says the expert in real estate financing.

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