Dealing with your home loan should be considered in the context of your overall debt profile and the size of the retrenchment payout you will be receiving.
This is according to Craig Gradidge, executive director of Gradidge-Mahura Investments. “If your retrenchment package after tax is a lot bigger than the outstanding home loan, settling the loan becomes an option,” he says, while cautioning that if you try to settle your home loan, you may end up with little to no cash available for other critical expenses.
Andrew van der Hoven, head of home loans at Standard Bank, says unfortunately many people fear telling their bank that they can’t make a payment on a loan.
“However, the more cooperative customers are, the more likely they are to keep their homes. Remember it is not in the bank’s interest to repossess properties. Our aim is rather to try to help customers keep their properties wherever we can,” he says.
The banks offer different options to help financially-distressed consumers.
The option chosen will depend on your personal credit profile, your history with the bank and your personal circumstances.
Geoffrey Lee, managing executive of home loans at Absa, says it offers both short-term and long-term plans. Thozama Mochadibane, head of customer delight at Nedbank Home Loans, strongly advises homeowners to contact their bank immediately, noting that their credit profile is likely to be impacted negatively if they start skipping payments or short-paying without making prior arrangements with the bank.
What are your options?
- A payment holiday – during this time you may be allowed to skip payments entirely or to make partial payments. If you have been retrenched, Absa offers reduced repayments for six to 12 months. These payments may be as low as 25% of your original monthly repayment, depending on your affordability. Nedbank clients can suspend their bond repayments while awaiting a retrenchment payout. If you are planning to settle the bond with your retrenchment payout, cancellation figures will be issued, and the bank will initiate the bond cancellation process.
- An extended repayment plan – this has the effect of reducing your monthly payments until you are financially stable again. When you do this, your repayments are offset against the interest owing, so the overall debt does not grow rapidly due to compound interest. Lee says Absa allows you to extend your home loan up to a maximum of 360 months or 30 years.
- Selling the property – this is the worst-case scenario and usually the last resort. Van der Hoven says Standard Bank’s EasySell process helps ensure that the best possible price is obtained for the property and the bond is settled to get the customer’s credit record back on track. “To date EasySell has assisted more than 4 000 customers,” he says.
Buyisile Maseko, FNB’s growth head for the gold (customer) segment home finance division, says clients are strongly advised to use the FNB Quick Sell programme to maximise on the value of their property as well as mitigate any potential shortfalls that may arise as a result of legal action.
Mochadibane says the price you get for your home from the Nedbank Assisted Sales Programme is likely to be far better than the price you would get from a sale-in-execution. “Nedbank also forgoes a portion of the shortfall or residual balance after the assisted sale,” she says.
Is it a good idea to access equity in your home loan?
Gradidge cautions against this idea.
“It is an option for those who have equity available, and the funds can be added to your retrenchment package until you are able to get a new job,” he says.
“However, it is not a good idea to increase your debt going into a new job, especially as you may need to access that equity in future if the economy remains flat.”
Van den Hoven says a major advantage of engaging honestly with your bank at the first hint of financial difficulty is that it can help you avoid blacklisting, which can have a longer-term impact on your financial future. He agrees with Gradidge that it is inadvisable to try to access money out of your home loan when you are retrenched.
“First, the NCA [National Credit Act] requires an affordability assessment to be carried out and you are no longer earning an income,” he says. “Secondly, unless you are positive that your job situation is temporary, we do not recommend this option.”
How many homes have been repossessed since January this year?
The banks were reluctant to provide hard figures on repossessions, with Standard Bank saying that repossessions accounted for less than 0.05% of its bonded properties. FNB was unable to provide exact numbers, but confirmed that there has been an increase in the number of repossessed homes where customers have been retrenched.
However, the graph below from a Lightstone report, clearly shows that the number of sales-in-execution have declined steadily in the last four years. Mochadibane says more than 40% of sales-in-executions are cancelled because the clients made payments to cancel the sale and/or concluded a payment arrangement with their bank.