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.