MORTGAGE BONDS – WHAT IS A COVERING BOND?
Most people that own immoveable property are familiar with Mortgage Bonds – especially first time buyers.
There are different types of bonds and one of these is known a Covering Bond. So what is a covering bond? – does it warrant further investigation?
A Covering Bond is a mortgage registered over property as security for an amount that will be lent or advanced to the person/entity who wants to borrow (mortgagor) by the entity/person lending the money (mortgagee) in future or for future debts in general. The purpose of a covering bond is to secure continuous covering security to the maximum amount stipulated in the bond.
A covering bond is noteworthy of consideration because it is an exemption to the requirement that a valid principal debt must already exist before a mortgage can be registered as security – it therefore serves as security for future debts and the maximum amount of the security must be explicitly mentioned in the Bond.
A covering bond can therefore be registered as either a mortgage bond in respect of immoveable properties such as a house, or a special notarial bond in respect of movables such as vehicles.