Don’t stop paying until transfer
Most homeowners know by now that when they list their property for sale, they also need to give their bank at least three months’ notice of their intention to cancel their home loan so they can avoid having to pay a penalty.
What many don’t appreciate, however, is that they need to keep making their monthly bond repayments during the period that it takes to transfer the property after it is sold.
“It is true that the bank will usually make provision for three month’s worth of payments in the cancellation figure it provides to the transfer attorneys,” says Rudi Botha, CEO of leading mortgage originator Betterbond, “because that is the average time it takes for a property to be transferred from one owner to another. “But it is a mistake to stop making bond repayments as soon as the sale agreement has been signed.
For one thing, it could easily damage your credit record and seriously hinder your chances of obtaining another home loan, or of being able to negotiate a lower interest rate.” At worst, he says, any internal communication mix-up at the bank could result in you actually being listed as being in default, and in proceedings being started to repossess the property you have sold but not yet transferred – especially if the transfer takes longer than the anticipated three months.
At the least, you will probably be automatically listed by the banks as a ‘slow payer’ and have to spend valuable time and effort to explain why you did not keep your repayments current until transfer. You might then also only be able to secure a new home loan at a premium rate of interest, and this could add tens of thousands of rands to the eventual cost of your new home.
There is also the risk, Botha notes, that something might go wrong with the sale, like the buyer being unable to obtain the necessary finance and then you could find yourself liable for several months’ worth of arrears bond repayments all at once, in addition to the current repayments on your unsold home. “And finally, even if you escape any of these unpleasant consequences of non-payment, the interest due on the unpaid bond instalments will keep compounding, and that could make a nasty dent in the proceeds you eventually receive from your sale.
“On the other hand, though, if the transfer takes place more quickly than anticipated and you have kept paying the bond instalments, there may well be a credit due to you which would swell those proceeds quite nicely.”