“After nearly 20 years I’m finally at the point where I’ve just about repaid my home loan. This has me wondering though, what happens or what I should do when I pay the final instalment?”

The first thing to do after you pay your final instalment to the bank is open a bottle of champagne and celebrate your home being fully yours! Once the important celebrations are finalised, you can move on to consider your options.

It must be noted that your home loan (or mortgage) will not automatically be cancelled just because you have paid the final instalment. This leaves you with two options:

1. Keep your home loan account with the bank open; or
2. Cancel the home loan account with the bank.

Many choose to keep their home loan accounts open as they can still continue to use and draw from their flexi-account facility linked to their home loan. The advantage of keeping your home loan account open is that you will not have to incur further costs to register another bond over the property as security should you wish to take a further loan from the bank for example to fund house renovations. You will still need to pay the monthly administration costs of the bank and your insurance policy and of course, if you loan money, you will need to monthly pay back the new loan. Also note that the bank will keep the title deed to your house as security until the home loan is cancelled.

If you would rather part ways with the bank and cancel your home loan account, the following steps should be followed:

Firstly, you must give the bank written notice of your intention to cancel the home loan. Usually a period of 90 days is required. The bank will then send instructions to their cancellation attorney to assist them with cancelling the home loan at the Deeds Office. If you fail to notify the bank within the above-mentioned three-month period of the cancellation of your home loan, additional charges could be added to your settlement statement.

Secondly, the cancellation attorney will provide you with a settlement statement containing your cancellation figures. The cancellation figures is made up of the settlement amount and approximately six months of life insurance premiums in advance so that provision is made for the cancellation process to be finalised. In case of early termination, an early termination penalty may also be added to the cancellation figures. Once the cancellation figures are paid, the cancellation attorney lodges a consent to cancel your home loan at the Deeds Office. On date of registration at the Deeds Office, your home loan is officially cancelled and the account with the bank is closed.

You will then receive the title deed to your home from the cancellation attorney. This title deed reflects your ownership of your property and should be carefully stored. Once lost, it can be an expensive exercise to replace such a title deed.

Once the home loan is cancelled you no longer have to pay life insurance premiums to the bank or any bank charges or banking fees. As cancelling your home loan also means you are cancelling your home insurance with the bank, it will be important to without delay ensure that you take out the necessary insurance cover for your home.

If you are unsure about the exact pros and cons of cancelling your home loan, consider talking to your attorney and banker for more information about the options at your disposal.

Source: Blake Bester De Wet & Jordaan