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Don't always bank on them

28 April 2006 Angelo Coppola

It is common cause that local banks are 'confiscating' in the region of three months penalty interest on early (less than 3 years) cancellation of a mortgage bond.

It appears that the banks are relying on an extract, taken from section 3A of the Usury Act 73 of 1968.

Here is the first response we have received. We await the other major South African banks responses.

Anushka Ramlall is head of value analytics at Nedbank Home Loans, who had this to say.

Nedbank clients may either serve the notice period, or pay a fee in lieu of notice. From 1 January 2003, the 90-day early settlement notice period became applicable to all new loans where both the inception and registration dates occur after 10 November 2002.

From 11 November 2002 Nedbank's loan agreement stipulates the bank's 90-day early termination requirements.

The only instances where the notice period may be waived are as follows:

* Deceased Estates;
* Sequestrated Estates and all mortgage collection based bonds;
* Bonds where the inception date is earlier than 11 November 2002;
* Where clients provide sufficient evidence that they will be taking out a new bond with Nedbank;
* Further loans with and without registration will be excluded from the 90-day notice period; and

Bonds registered after 10 November 2002, and that remain with the bank for more than three years, are automatically excluded from the 90-day notice period.

Here is a for-instance:

The following simplified example may be useful for clients whose loans do not meet any of the abovementioned criteria, and who need to decide whether to give the bank the required written notice, or pay a fee in lieu of notice:

Bond registered on 25/02/2003
Registered amount R260 000.00
Current interest rate 11.50%
Cancellation figures issued on 01/03/2004

Balance as at 01/03/2004 (capital R247 736.44 + accrued interest R2 263.56) R250 000.00
Three months interest in lieu of notice R250 000.00 x 11.50% x 90/365 R7 089.04
Total amount required to repay the loan - Guarantee requested R257 089.04

If the bond is cancelled on 30/04/2004
The interest on the bond account is calculated as follows:
01/03/2004: Balance brought forward R250 000.00
01/03/2004 - 31/03/2004: R250 000.00 x 11.5% x 31/365 R2 441.78
Sub total: R252 441.78
01/04/2004 - 30/04/2004: R252 441.78 x 11.5% x 30/365 R2 386.09
Closing balance:R254 827.87
Amount received from the Attorney as per the guarantee request(R257089.04)
Therefore, the fee in lieu of notice is R2 261.16

Interestingly enough there is also a little health warning at the bottom. The example has been simplified for illustrative purposes and does not include all the possible provisions and charges that may be included when actual cancellation figures are issued.

So there may well be more costs.

Editors thoughts:

* This sounds mysteriously similar to the early surrender penalties that the life offices imposed on policyholders, and perhaps more importantly not informing home buyers that there is this clause.

* And there I was thinking it was just finance charges that could be claimed back or was I wrong?

* We wait with baited breath for the other big three SA banks to respond. And then the debate can commence.

 

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