Paying off your home loan is a major financial milestone. After years of monthly repayments, you can finally celebrate owning your home without the burden of a home loan. But before you celebrate too much, there is one important step to consider: what happens to your home loan once the final payment has been made?
Contrary to popular belief, paying off your home loan does not automatically cancel the bond registered over your property. You have two options: keep the home loan account open or formally cancel the bond.
Option 1: Keep Your Home Loan Open
Some homeowners choose to keep their home loan account open, particularly if it includes a flexi-bond facility that allows them to access available funds when needed.
This may be useful if you plan to renovate your home or need to borrow money in the future, as you could avoid the costs of registering a new bond. However, bank fees may still apply, and the title deed will generally remain with the bank as security until the bond is cancelled.
Option 2: Cancel Your Home Loan
If you prefer to close the account and have the bond removed from your property’s title deed, you will need to follow the formal cancellation process.
Step 1: Give the bank notice. Notify your bank in writing of your intention to cancel the bond. Banks generally require 90 days’ notice. Failing to provide sufficient notice may result in additional charges.
Step 2: Settle the cancellation costs. The bank will appoint a cancellation attorney to handle the process. The attorney will provide a settlement statement setting out the amount payable, which may include the outstanding balance, applicable interest, legal costs and any early termination penalty that applies.
Step 3: Register the cancellation. Once the required amount has been paid, the cancellation attorney will arrange for the necessary documents to be lodged at the Deeds Office. The bond is formally cancelled once registration takes place.
Step 4: Receive your title deed. Following cancellation, your title deed can be released to you. Keep it somewhere safe, as replacing a lost original can be costly.
Don’t Forget Your Insurance
Once the bond is cancelled, the bank’s related charges and any bond-linked insurance arrangements may fall away, depending on the terms of your policies. Make sure you have suitable building insurance in place before any existing cover ends.
Which Option Is Best for You?
There is no one-size-fits-all answer. Keeping your account open may offer flexibility, while cancelling the bond gives you greater independence from the bank and removes the registered bond from your property.
Before making your decision, speak to your banker and attorney to understand the costs, timelines and implications of each option.
Paying off your home loan is a significant achievement. Taking the right next step will help you enjoy the full benefits of owning your home.
Terry Mathie is an attorney with Drake Flemmer & Orsmond Attorneys. Contact them on (043) 722-4210.