select
|

Is it worth keeping a home loan open?

If your home loan is paid up or even in credit, you may still be liable for a monthly service fee. The fee will be determined by when you entered into your home loan agreement or last amended it.

If your home loan agreement was entered into before the National Credit Act (NCA) came into effect, and no material changes have been made to your original agreement, the Usury Act maximum monthly fee of R5 (before VAT) applies. If it was after June 1, 2007, or if your original agreement was amended after the introduction of the NCA, you can be charged up to R50 (before VAT) a month.

First National Bank (FNB) client Mr BC complained to the bank that he is being charged a monthly service fee of R5.70 on a home loan account that has been in credit for the past 10 years.

Praven Subbramoney, head of product and marketing at FNB, says the bank is within its rights to charge a monthly administration or service fee on all its accounts.

"There is no mention in our documents, or in the regulations, of a rule to suspend fees when accounts are paid up or [in] any other instances. While we may have waived the fee in the past, we have re-evaluated our situation due to the economics of the product and, unfortunately, can no longer afford to do so," Subbramoney says.

The only way you can get out of paying the monthly service fee is by cancelling your mortgage bond, which will cost you about R2 500.

Subbramoney says many customers don't know that there's a cost to cancelling a mortgage bond. "This cost is paid [by the client] to an attorney to cancel the bond at the Deeds Office when the bond has been settled."

As soon as a bond reaches maturity (that is, when the full term of the loan period is reached), it has to be cancelled - and this service comes at a cost.

All the banks have their own "panels" of conveyancing attorneys to whom they give work.
Subbramoney says FNB Home Loans has negotiated with its panel of attorneys to discount bond cancellation fees to R1 400 for FNB clients. This includes the Deeds Office cancellation levy of R80.

Although it may cost you to keep a home loan account open - and you don't earn interest on a positive balance in a paid-up home loan account - the benefits of keeping your account open are that you have access to relatively cheap credit (in case of emergency) and you save yourself the cost of registering a new mortgage bond should you want access to a loan again.

Subbramoney says if you want to earn interest on a positive balance, you should open an investment or savings account. Clients are not encouraged to leave positive balances in their mortgage accounts "due to past experience with fraud and money laundering on these accounts", he says.

Clients at Absa and Nedbank are not charged a monthly service fee on home loans that have been paid up, but conditions apply.

At Absa, provided your account does not have a positive balance, you won't be charged a monthly service fee, Arrie Rautenbach, head of retail markets at Absa, says.

At Nedbank, you need to ask for your home loan account to be made "dormant", Charles de Winnaar, the bank's acting head of sales and customer management, says.

A monthly service fee will be charged where a home loan account has a zero or positive balance and the client has not asked for the account to be made dormant, De Winnaar says.

Like FNB, Standard Bank levies a monthly service fee on home loans that have been settled, because such accounts are still "active", Steven Barker, head of home loans at Standard Bank, says.

Barker defines "active" home loan accounts as those that are kept open for homeowners' insurance and customer convenience.

Even when the account reflects a nil balance, the bank is required by law to provide annual statements and notifications of rate changes, and must cover the cost of keeping the title deed. All these costs must be recovered, Barker says.

The "true cost" of running a mortgage bond is, on average, more than R100 a month, FNB's Subbramoney says. He says the bank incurs costs for managing home loans in the following ways:

  • Capital costs: banks must keep capital to cover any available balances. This means the bank incurs a cost for any prepaid funds or credit that is available to you.
  • Monitoring for fraud and money laundering.
  • Monitoring of credit management and account conduct.
  • Collecting debt from customers who don't pay.
  • Ensuring safe custody of the bond and deed documentation.
  • Day-to-day customer services and correspondence.
  • Computer system and staff.

Similarly, the initiation fees on home loans don't cover the actual cost of bond origination, Subbramoney says.

"The actual origination cost to the bank is in the region of three times the fee recovered," he says.

The NCA restricts money lenders to an initiation fee of no more than R5 700 (R5 000 plus VAT).
Subbramoney says the advent of Basel III (a global regulatory standard on bank capital ade-quacy and market liquidity risk) will add to liquidity charges, affecting the interest part of the mortgage business.

"The reality is that if the banks don't find a healthy balance on the mortgage portfolio that is economically viable, they may need to rethink mortgage lending in totality," he says.

If you have a home loan of less than R500 000 that was in force before June 1, 2007, when the National Credit Act (NCA) became fully effective, you should be paying no more than R5 a month to your bank or credit provider in administration or service charges.

The Usury Act, which governed home loans before the NCA became effective, set a cap of R5 (excluding VAT) for monthly service fees on home loans of R500 000 or less.

The Act was repealed and replaced by the NCA, which provides for a maximum monthly service fee of R50 (excluding VAT) on home loans.

However, a credit provider is not entitled to charge an administration fee in excess of the maximum set under the Usury Act on home loans granted before the NCA replaced the Usury Act.

This is in terms of a judgment handed down by the Supreme Court of Appeal at the end of last month, in the matter between the National Credit Regulator (NCR) and Standard Bank.

Standard Bank contended that the limit imposed on administration fees under the Usury Act did not "survive the transition to the NCA" as far as pre-existing home loans were concerned.

The regulator disputed this, and the Supreme Court of Appeal ruled in its favour, declaring that Standard Bank "is not entitled to charge an administration fee on housing loans that existed at the time the NCA came into operation in excess of the fee provided for in ... the Usury Act unless and until that fee is amended under the NCA".

If you took out a home loan before June 1, 2007, check your bank statements to ensure you haven't been overcharged for administration. If you find that you have, you can take it up with your bank or the NCR.

Steven Barker, head of home loans at Standard Bank, says all affected customers will have their monthly service fees amended back to R5 (before VAT) from January 1, 2013. Charges in excess of the Usury Act maximum will be fully refunded.

(IOLProperty)



  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 23 Nov 2017
      As the holiday season approaches, most of us are counting the days until that year-end bonus hits our account. There’s nothing quite like a little bank balance booster to get us in the holiday spirit.
    • 23 Nov 2017
      The Adelphi Centre (now entitled “ARTEM") in Sea Point, Cape Town, is being extensively renovated, and once complete will offer an ultra-luxurious galleria style shopping centre unlike any other seen on the Atlantic Seaboard or in Cape Town.
    • 23 Nov 2017
      If you are looking to sell your home in today’s real estate market, there are certain things that you need to include both inside and outside your house. Today’s generation of home buyers is looking toward a more eco-friendly, energy and water conscious home, and if your house stands out then you are more likely to be able to sell it.
    • 22 Nov 2017
      Most people know of the Community Schemes Ombud Service (CSOS) and that levies must to paid to fund its operations. In this article the experts at Paddocks will address some of the issues that are causing confusion.
    • 22 Nov 2017
      While sales have noticeably slowed in most sectors in most Cape town suburbs, the security estate sector in Constantiaberg has bucked the trend by remaining buoyant, with sales by August this year already surpassing total sales in 2016.
    • 22 Nov 2017
      The end of the year is fast approaching, and so are all the travellers, tourists and holidaymakers. For those who live near or own a property in a holiday-hotspot, the festive season also brings with it an abundance of short-term rental opportunities. Its a great way for property owners to make a few extra rand for their own holidays or to put towards their savings.
    • 21 Nov 2017
      The buying process is over, and the moving truck has delivered your household goods to your new property. Now it’s time to unpack and turn your new house into a home.
    • 21 Nov 2017
      When an offer to purchase a property is signed by both buyer and seller, this constitutes a binding agreement or “Deed of Sale” between the two parties. However, in most cases the “standard contract” might not be enough to cover all the specifics pertaining to the sale. The agreement may require some additions or alterations to clauses, which needs an expert hand in the drafting of such
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK