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

For thousands of South Africans a 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,” says Bruce Swain, CEO of Leapfrog Property Group, “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. “The first thing people need to know is that the banks do not want to repossess their homes – that’s a last resort. It makes a lot more sense, and saves a lot of money if a lender keeps making payments,” explains Swain.
 
The courts also support this approach. In fact, in a recent case that went to the Supreme Court of Appeal, First National Bank (FNB) was obliged to take steps to engage and negotiate with a defaulting client first,  before being granted a court order to sell the consumer’s house.
 
Talk to your bank sooner, rather than later
 
Swain advises homeowners to 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 it’s best to 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 instalments 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,” says Swain.
 
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,” advises Swain. 
·         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,” says Swain, “If a buyer purchases a property for R1.2 million, with a deposit of 20%, with a repayment at 11% over twenty 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 3 years, with a saving in interest of R251,484. Increasing the repayments by one thousand rand per month, reduces the term by 5 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, home owners would be wise to budget for the increases – paying in extra where and when they can to help alleviate a price hike,” advises Swain.


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