When you cancel a bond on your property, the bank may charge you penalty interest, which is a fee for ending the loan agreement earlier than the agreed-upon terms. The penalty interest is calculated based on the outstanding balance of the loan and the number of months left until the end of the loan term.

The purpose of penalty interest is to compensate the bank for the loss of income that would have been earned if the loan had continued for the full term. The amount of penalty interest charged may vary depending on the terms of your loan agreement and the policies of the bank.

It’s important to note that penalty interest is not the same as early termination fees or cancellation fees, which may also be charged by the bank when you cancel your bond. Penalty interest is specifically related to the interest charges on your loan and is separate from any other fees or charges that may apply.

This can be totally prevented by giving the bank 90 days’ notice of the cancellation.