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Can’t pay your home loan? Here’s what to do

Speak to your lender as soon as you get into trouble.
Picture: Bloomberg

For thousands of South Africans, buying a house or apartment is one of, if not the biggest, financial investment they’ll ever make.

Everyone needs somewhere to live and, in most cases, I would advise people to buy, rather than rent as they’re investing in their own futures as opposed to paying off someone else’s mortgage. That being said, buying a house is an expensive undertaking and buyers need to be very sure they can make the monthly bond repayments.

Even with the best budgeting in the world, the unexpected can happen and homeowners could find themselves in a position of not being able to make their monthly mortgage repayments.

Talk to your bank sooner, rather than later

Homeowners should approach their mortgage lenders (which will be the banks in most cases) when they first see trouble on the horizon. Getting into debt and worrying about losing a home is incredibly stressful. While some of that stress can’t be avoided, contact the lender before matters become dire to negotiate a feasible repayment plan.

There are a number of options available to lenders (especially if they tackle the debt issue before it escalates – the worse the crisis, the fewer options remain). These options include restructuring the payments, agreeing to interest-only payments for a time, reduced installments over a specific period or a three-month payment “holiday” (though this option isn’t ideal as the unpaid interest will increase over this period).

In most cases, the lender will work with the homeowner as it’s in the best interests of both parties for the homeowner to keep their property. It’s important to note however, that these are short-term measures and that homeowners need to revert back to the original payment plan as soon as it’s financially possible.

Debt-proof your home

The best course of action is naturally not to get into arrears in the first place and there are a number of things homeowners can do, both before buying and once the property has been transferred:

  • Pay a larger deposit 

Making a bigger down payment will mean buyers will need a smaller home loan and can negotiate for better rates as they’re negotiating from a stronger position. 

  • Secure a lower interest rate

When applying for a home loan, it’s generally a good idea to shop around to see what the different banks offer – negotiating a low interest rate (when possible) can do much to decrease costs on a month-by-month basis.

  • Pay a little extra each month

The more money you can pay into your home loan per month the better. Even R500 extra per month can make a big difference. If a buyer purchases a property for R1.2 million, with a deposit of 20%, with a repayment at 11% over 20 years, it will cost the buyer R9 819 per month (excluding interest and municipal rate fluctuations). However, if the buyer increases their repayment by R500 per month the term reduces by three years, with a saving in interest of R251 484. Increasing the repayments by one thousand rand per month, reduces the term by five years, saving the buyer R409 140 in interest.”  

  • Pay attention to the repo rate

The Reserve Bank’s Monetary Policy Committee meets to determine whether they amend the repo rate every three months and it’s normally pretty clear whether they’re embarking on a hiking or lowering cycle during the year. If it seems likely that the repo rate will increase, homeowners would be wise to budget for the increases – paying in extra where and when they can to help alleviate a price hike.

Bruce Swain is CEO of Leapfrog Property Group.

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