The mortgage bond secures not only the principal debt of the bank (ie the amount of the loan), but also related expenses which the bank may incur in respect of the loan if the borrower defaults (such as the legal costs in the event of a foreclosure).
The Bank automatically instructs the bond attorneys to register a bond with an additional sum (this could be an amount of 20/25 percent over and above the original bond amount).
The bond document therefore makes provision for an “additional sum” over and above the amount borrowed. The additional amount is separate from the capital amount and is not included in the repayments, nor does it affect bond repayments, and the borrower is not charged any interest on this sum.
It only becomes relevant when the borrower defaults and the Bank takes steps to sell the property in execution; or where the Mortgagor is declared insolvent.
Please take note that this must not be confused with the facility offered by Banks wherein the Banks allow a bond to be registered for a higher value but the amount available to the Mortgagor at date of registration is limited to a lower amount.