Understanding Mortgage Bonds

A mortgage loan is the money offered by a bank in order for a purchaser to finance a property. The bank lends the money on the security of a mortgage bond which is a legally binding contract registered against the title deed of the immoveable property.

The bank that lends the money is referred to as the mortgagee and the borrower is the mortgagor.

A mortgage loan is offered by financial institutions like Standard Bank, Nedbank, First National Bank, etc., to clients who must qualify in terms of the lender’s qualification criteria. On the main the borrower must be gainfully employed with a clear credit bureau check, and the repayment to income ratio must not exceed a specific percentage, usually 30%.

Money to buy property is considered too large for most of us to pay for the property in cash, hence banks offer mortgage loans with repayment periods of up to 30 years. Current legislation does not allow for a longer period.

Before a bank lends out the money on the strength of property offered as security, the banks conveyancers prepare a legally binding contract called a mortgage bond which the borrower signs. This mortgage bond is registered against the property title deed at the local deeds office and only after the mortgage bond is registered, does the bank pay out the money to the borrower.

The mortgage bond contains all the terms and conditions of the loan. It also contains the obligations of the borrower as well the consequences if the buyers fails to pay back the loan. The main details on the contract stipulate the details of the bank and the borrower(s), the deeds description of the property, the amount of the loan advanced, the repayment thereto, and the terms over which the loan is to be repaid.