What is an ‘early termination fee’

When an owner is settling his bond and it is cancelled in the deeds office, the bank issues cancellation figures to the attorney. If the owner has not given the bank 3 months written notice that he intends to settle his bond, the bank will charge an “early termination fee”, based on 1% of the settlement amount. This is to compensate the bank for the loss on the interest they will suffer if the owner settles his bond before the 20 years term of the bond is up. To get around this, the owner can instruct the attorney to delay the cancellation of the bond in the deeds office, with 90 days. Once the 90 days period has passed, the attorneys can obtain new cancellation figures which will exclude the termination fee. The alternative to this is to let the transfer proceed, as it takes 6-8 weeks to finalise. The penalty amount will, therefore, decrease pro rata per day, until it is zero on day 90.