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  • Writer's pictureThe Kaplan Team

THOUGHT OF THE WEEK Penalty interest

When selling your property, it is important to remember that the bondholder may charge penalty interest for early cancellation of the bond and that this can seriously affect the nett proceeds of your sale if not managed correctly and timeously.

Penalty interest can be avoided by giving 90 days written notice of your intention to cancel the bond. Penalty interest is automatically included in the cancellation instruction issued to the attorney attending to the bond cancellation on behalf of the bank, but will reduce pro-rata in relation to the time it takes for the bond to be cancelled. If cancelled after 90 days, no penalty interest will be payable.

Sometimes parties agree on a transfer date after expiration of the penalty period to avoid paying penalty interest. However, to avoid delays in your transfer, rather give notice before concluding a sale, perhaps even upon marketing of your property. Work closely with your estate agent when structuring your sale and negotiating a transfer date to ensure that you deal with the issue of penalty interest efficiently.

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This article is not intended to constitute legal advice and is produced for information purposes only and to provide a general understanding of the legal position relating to the topic. It is recommended that advice relating to the specific circumstances of your situation be sought from our attorneys before acting upon the content of this article. This article was written at a particular point in time and accordingly may not always reflect the most recent legal developments, if any, applicable to the relevant topic. Kaplan Blumberg and its partners and/or employees, are not responsible for any consequences which may follow upon any decision taken to act upon the information provided in this article.

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