Switch bonds: The good, the bad and the potential savings

The concept of a “switch bond” means to move your bond from your existing financial institution to another financial institution. To effect this change, the current registered bond needs to be cancelled and the new bond needs to be simultaneously registered at the relevant Deeds Registry.

11 Apr 2023 2 min read Real Estate Law Alert Article

At a glance

  • Switching a bond refers to moving a mortgage from one financial institution to another, requiring the cancellation of the current bond and the registration of a new bond.
  • Homeowners may choose to switch their bonds for reasons such as attractive interest rates, better customer service, consolidating banking products, and potential cost savings.
  • The process involves giving the current bank a 90-day notice, completing an application with the new bank, undergoing a credit assessment, and meeting standard requirements. Transactional costs, conveyancer fees, and early termination fees may apply, but negotiations with the current bank can be advantageous. Regularly reviewing the financial situation allows for better leveraging when negotiating with other banks.

Some of the reasons homeowners may want to switch their bonds include:

  • It is less admin intensive than you might think. Homeowners need to give their current bond holder 90 days’ notice of their intention to move and provide the necessary documentation to initiate the process. An application with the new bank needs to be completed and then a credit assessment will be concluded, after which the switch may be approved. All banks have the relevant process outlined on their websites.
  • Some banks offer more attractive interest rates that will result in savings on monthly repayments and interest charges.
  • A homeowner is not happy with their current bank’s customer service and is looking for better customer service at another bank.
  • A homeowner would like to have all their banking products held at one bank to ensure better reward benefits.
  • Generally, switching banks will not affect your credit score.

Further, banks do not require any additional conditions to be met when switching bonds, besides the usual requirements such as ensuring that your property is insured, ensuring that life cover is in place, if applicable, and that your monthly repayments are paid timeously.

A potential stumbling blocks in switching bonds is the transactional costs that will apply; this amount will depend on the value of a homeowner’s loan. A homeowner also needs to consider the costs of a conveyancer being appointed to cancel the current bond and register the new bond, and the associated Deeds Registry costs for each registration. Sometimes a bank will also charge a “closing account fee” and, should a homeowner forget to give their bank notice within the 90-day period, an early termination fee by the bank will apply. A homeowner will also need to pay an initiation fee, which the new bank will charge, but this is usually a once-off payment or can be included in the loan amount.

Once a homeowner has given the bank notice that they would like to cancel their loan account with them, that bank may contact them to ascertain their reasons for wanting to cancel and to try and resolve the cancellation reasons in an attempt to retain the homeowner – this is also an advantage as it can allow the homeowner to try and negotiate better terms.

One thing all homeowners with loan accounts should do is to regularly review their financial situation, as a homeowner could have sufficient funds to pay more into their loan account, giving them more leverage to negotiate with alternative banking institutions.

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