If you tell your bank you can’t afford your home loan, this is what will happen

BY BONNY FOURIE bronwyn.fourie@inl.co.za

While selling may be a good idea, it shouldn’t be your first option. There are alternatives

RISING interest rates and the cost of living are forcing many homeowners to give up their homes as they can no longer afford their bond repayments.

But while selling may be a good idea in some instances, it should never be your first option, experts say.

Rather, you should approach your bank as soon as possible to find an alternative, and possibly better, solution to help you keep your home.

Even if you are not yet battling to pay your bond, despite the rising interest rate, Adrian Goslett, the regional director and chief executive of RE/Max of Southern Africa, advises that you take a realistic look at your finances to make sure you can keep up with this repayment and other debt.

“It is vital that homeowners in financial trouble take action before the situation slips out of their control. It is a time to act decisively, take control of the situation, and consult with people who can assist.”

The sooner you act, the better your chances are to rectify your financial situation and you could have an opportunity to start afresh.

“It is best to be upfront with the bank rather than defaulting on a payment without notification. If the situation is left to run its course and the homeowner is not communicating with the bank, not only could it result in the homeowner losing their property but it could potentially also lead to a tarnished credit record and blacklisting. Even renting a property could then become difficult because most landlords do credit checks on their potential tenants.”

Goslett also addresses a common misconception that the bank will repossess a property as soon as you communicate your distress.

“Banks do not really benefit if their client’s home is repossessed. It is much more beneficial for the bank if the homeowner continues paying off their debt over time. That’s why they will try to assist where possible.”

If you do approach your bank, these are the ways in which they can help:

✦ Rescheduling or restructuring your debt.

✦ Arranging repayment options.

✦ Renegotiating the home loan term from 20 years to 30 years.

✦ Offering to list the home on the bank’s distressed property programme.

Once you tell your bank about your financial situation, it will be able to offer solutions that are best suited to your needs.

Renegotiating your home loan term

Over recent months there has been strong interest shown in the option to renegotiate the repayment term of a home loan, especially as many people have not known that this is possible

However, before you go this route, you need to be aware of the downsides that come with the benefits.

Angela Glover, the head of product at FNB Home and Structured Lending Solutions, says the benefit of a longer repayment term is that your required monthly repayment will be a bit lower than if your term is shorter. On the flip side though, if you use the full term to repay your loan – such as take 30 years to repay it without prepaying, you will end up paying more in total interest over the lifetime of the home loan.

She shares a practical example of the pros and cons of longer versus shorter repayment terms: For a home loan amount of R1 million, at an interest rate of 11%, the monthly repayment over 20 years would be approximately R10 321, while over 30 years the monthly repayment would be R9 523. This is a saving of R798 on your monthly cash flow. However, over 20 years, you would pay approximately R1 477 252 in total, which includes interest, while, if you repay the same R1m over 30 years you will pay approximately R2 428 264. This is an extra R951 112 over the additional 10 years.

Selling your home

Often, Goslett says, the most effective method to keep your credit record intact is to sell your property through the bank’s distressed sales programme. This does not mean that the home will be sold at auction or that it can be sold without your consent.

“The bank works with agents to set a fair price that the seller has to agree to before the deal can go through. In certain cases where the homeowner has built up enough equity, they may then be able to cover not only their remaining bond, but also some other debts as well. Essentially, this option could provide the homeowner with an opportunity to start again with a clean slate.”

Alternatively, you could sell your home privately or with the assistance of an estate agent. If you are looking to sell due to financial difficulty, Lew Geffen Sotheby’s International Realty’s Jill Lloyd says you should not leave it too late.

“Speak to an experienced agent and they will market your house and, if necessary, keep in touch with the bank to keep them from pressuring you… Agents are not going to advertise that you are under pressure. They are going to try to get the best possible price for you.”