Bond Settlement

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WhyME

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Johannesburg
Scenario:
Bond Period 10 Years/120 months
Interest 9.75%
Principal Debt R431,000
Total Interest R242 209.00
Monthly Repayments R5,560.00

Total VAT Inclusive R681 527.00

Question 1 - Settle and Cancel Bond

If I settle amount R431,000 within 3 months of bond, roughly how much would my settlement figure be? Want to establish how much they would add on top of the R431,000 Principal debt.

Question 2 - Settle and NOT Cancel Bond

If I keep bond open while I have settle principal debt what would I be paying for monthly?

Thanks
 
Settlement amount is normally just the outstanding bond amount, or at least that is how it works with my bank. Then you pay a lawyer 3 to 8K depending on complexity to transfer it into your name at the deeds office and get you the title deed (this is due to the fact that bonded properties are not actually owned by you until this happens, technically the bank is also part owner or something like that).

If you are already in the bond you can call and get a no obligation settlement quote with little difficulty. Otherwise read the contract.
 
Settlement amount would be outstanding capital amount + 3 months of interest as an early settlement penalty. If you give them 90 days notice of your intention to settle the bond then the penalty will be waived (but you would have to pay the 3 monthly installments in the interim so it works out much the same).

Can't answer the second one. I've kept my bond open by maintaining a R20k outstanding balance (I transfer out the monthly payment a day or so after it gets paid in). This way I pay minimal interest (about R120 per month) plus I still have access to my prepaid balance for emergencies.
 
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Jehosefat said:
Settlement amount would be outstanding capital amount + 3 months of interest as an early settlement penalty. If you give them 90 days notice of your intention to settle the bond then the penalty will be waived (but you would have to pay the 3 monthly installments in the interim so it works out much the same).

Can't answer the second one. I've kept my bond open by maintaining a R20k outstanding balance (I transfer out the monthly payment a day or so after it gets paid in). This way I pay minimal interest (about R120 per month) plus I still have access to my prepaid balance for emergencies.
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Wouldn't you get a better outcome by investing that prepaid balance elsewhere?
 
Jehosefat said:
Settlement amount would be outstanding capital amount + 3 months of interest as an early settlement penalty. If you give them 90 days notice of your intention to settle the bond then the penalty will be waived (but you would have to pay the 3 monthly installments in the interim so it works out much the same).

Can't answer the second one. I've kept my bond open by maintaining a R20k outstanding balance (I transfer out the monthly payment a day or so after it gets paid in). This way I pay minimal interest (about R120 per month) plus I still have access to my prepaid balance for emergencies.
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The 90 day rule is only if you are closing the bond due to a sale, not if you are settling it. That is what they told me this week when I asked anyways. I just gave notice and there was no penalty rate, just the outstanding balance and then lawyer fees to follow. I also kept it open a while in the same way you did until I was comfortable I had a big enough cushion outside the bond that I did not mind closing it off.
 
I still find it difficult though that bank would borrow you money without that putting mark up when u settle.
 
WhyME said:
I still find it difficult though that bank would borrow you money without that putting mark up when u settle.
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Is it not one of those things they used to do and then due to people complaining it got disallowed by government in the credit act?
 
eehellfire said:
Wouldn't you get a better outcome by investing that prepaid balance elsewhere?
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Not really. Stock market is volatile (and you don't necessarily have immediate access) and money market funds only return about 8%. This way I'm saving 9.25% plus I have no tax issues for earning more than ~R24k interest per year.

Cius said:
Is it not one of those things they used to do and then due to people complaining it got disallowed by government in the credit act?
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3 months interest is the maximum early settlement penalty according to the National Credit Act (for amounts >R250k). No penalty is allowed for amounts under R250k as far as I know.
 
What's the risk of having a bond fully paid up but not having your name on the title deed as yet. I mean technically if it's paid, you own it. Right?
 
Dev1 said:
What's the risk of having a bond fully paid up but not having your name on the title deed as yet. I mean technically if it's paid, you own it. Right?
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Suppose in case of a death of owner or insurance claim like a house fire things could get
tricky. But I wont pretend to know anything about this - just an assumption.
 
Dev1 said:
What's the risk of having a bond fully paid up but not having your name on the title deed as yet. I mean technically if it's paid, you own it. Right?
Click to expand...

As far as I know, your name is always on the title deed of the property. This is why you, and not the bank, are responsible for rates and taxes etc.

The bank is only allowed to take ownership if you fail to meet your obligations as per the mortgage bond (i.e. don't pay). The bank keeps the title deed so that you can't sell their security without them knowing about it.
 
What you can do is:
a) leave open: pay off almost all of the bond and leave a small amount owing, like R1000. If you have an insurance policy tied to the bond then it's worth leaving open as usually the insurance is pretty low vs what it covers. This is what I did with my one bond with my mom. Also the GDE paid a stipend for teachers towards housing so they paid the monthly bond repayment.
b) rent: if you rent the property leave the amount owing at a sweet spot. I currently rent out a property with a bond owing of about R420k. The interest on the bond coupled with other fees eliminate any tax I would pay and I make a few hundred rand each month after costs.
c) settle: pay off most of the bond so again R1000 or so is still owing. Wait for them to readjust your repayment amount and then settle. When settling they can charge 3 months of interest. If you settle on a low repayment the interest will be a few hundred rand. If you settle straight away on the high amount the settlement will be well over R10k.
 
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