Tuesday, January 18

How to cancel a mortgage loan without penalties


Canceling a bond is an unavoidable part of home ownership, but you are not alone if you have no idea what the process entails.

Here are the steps to take and tips to minimize costs and penalties along the way:

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Step 1: submit your notice of intent to cancel

Unless your bond has reached the end of its term (typically 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 incur penalties. (They generally do not apply if the property is part of a deceased estate or has been seized, or if you are obtaining a new home loan with the same institution.)

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

Please note 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 again.

Due dates vary by institution. Some expire immediately at the end of your 90-day period, while others remain valid for up to six months.

Good to know: Bonds canceled too early, usually within a year or two of a purchase, may be subject to an additional penalty of 1% on the outstanding bond amount. If you absolutely must sell this at the beginning of your ownership period, I suggest you ask your bond issuer to negotiate this rate with your lender, if possible.

Step 2: Request cancellation figures

Giving notice of intent to cancel a bond does not actually trigger the cancellation process. This only happens when your carrier (or cancellation attorney) is instructed to request your cancellation figures. This can happen at a time you choose if you are closing your loan account on your own, or as soon as your property is sold if it is on the market.

Step 3: settle outstanding amounts

Your lender will provide cancellation (or settlement) figures to your transmitter. These show exactly how much you will have to pay to pay off your remaining debt. If you cancel your bond without selling your property, you will have to pay this out of pocket. If you are selling, this will be automatically paid for with the proceeds of your sale as part of the transfer process.

Remember, lenders charge interest on your outstanding balance from the date settlement figures are provided to the date payment is received and the bond is officially canceled. This is unlikely to be much more than what you would pay for your bond anyway, so it shouldn’t be an additional financial burden, but it could cause some confusion if the final settlement figure differs slightly from the original figure provided.

Important: If your comprehensive homeowners insurance (HOC) is charged to your home loan account, you will need to transfer the debit order to a different account before the bond is canceled. Failure to do so could cause your insurance coverage to lapse, leaving you in a tough spot if something goes wrong.

Step 4: Pay the cancellation fees

Lenders typically do not charge bond cancellation fees other than (avoidable) penalties for early termination. However, you will need to pay the cancellation attorney for his services, even if your bond was paid in full. (These fees may be included in the settlement figure provided by your lender if they have hired the cancellation attorney on your behalf.)

It is important to note that this cost is not part of the transfer fees that the buyer covers. Bond cancellation fees are for the account of the seller or bondholder only.

Canceling a voucher is an essential step on most property trips, but it can be overwhelming when you first do it. Don’t be afraid to ask your bond maker for advice, who can help you streamline the process and minimize fees and penalties as you search for new financing options for your next real estate adventure.

Leonard Kondowe, Manager of the National Administration Center for Rawson Finance.


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