Have you been diligently paying your home loan for years? Has the current economic situation affected your liquidity or cashflow? Are you looking for relief?
Your home loan may hold the key. The options open to you will differ from bank to bank but these six options are worth investigating.
1. Take a "holiday”
Don’t worry – you won’t be breaking the rules. “A ‘payment holiday’ is an agreement with your loan provider that allows you to miss up to three monthly payments. It is one of the support measures that gained prominence during the Coronavirus pandemic, and has been a lifesaver for those who, for example, have been forced by their employers to take a salary reduction,” says Paul Stevens, CEO of Just Property.
Because you agree to this ‘holiday’ in advance with your loan provider, this option protects you from tarnishing your payment record. It is not viewed in the same light as going into arrears and your credit profile is not adversely affected.
Just remember that besides moving the repayment of your home loan out by a further 3 months, this relief will still attract interest, warns Carl Coetzee CEO of BetterBond, and in many instances that will be compounded over the remaining term of the bond. But it is an option if you need to access credit in the short term. Coetzee recommends eliminating the deficit by paying in extra as soon as possible while interest rates are so low.
2. Access your access bond
If you have an access bond then you can draw on the extra funds you’ve paid into your bond. This is probably your cheapest way to access funds and take advantage of the low interest rate cycle, says Coetzee. Your repayments will be adjusted monthly in line with the funds utilised over the remaining term of the bond.
3. Apply for a re-advance
In this case, you’re basically refinancing your home with a new bond. You can apply to access the equity of the bond payments already made, and reduce monthly repayments if your home has gone up in value. Coetzee notes that the interest rate originally negotiated generally remains in play. He advises that you ensure that the new calculation is taken over the remaining period of the loan: “Do not extend it beyond that period or you will just attract more interest.” The amount of the re-advance is determined by what was originally approved and the outstanding balance.
Stevens notes that no registration is required, which saves costs, but a re-advance would be subject to normal credit vetting.
4. Take out a further home loan
This option requires registration in the Deeds Office and will attract those costs and attorney fees. Coetzee raises the point that while this process usually takes about 3 weeks, timelines have been severely impacted by lockdown and Covid-19 restrictions. Delays should be expected.
“If costs are included in the loan amount, they will in turn attract interest over the term of the loan. It depends on whether the original deal was approved before or after the National Credit Act,” says Coetzee, adding that the initiation cost is approximately R6 500.
He suggests taking the extra loan over a much shorter period of time, such as 5 years, to attract less interest. Depending on your risk profile, the interest rate may differ from the original rate negotiated.
5. Restructure your current home loan
The options available differ from bank to bank and may involve the renegotiation of interest rate and an extension of original term. A longer term could mean lower repayments but more interest being charged over the life of the bond.
It is possible to move your bond from one institution to another, but you will have to go through a new application and credit vetting process. The costs are considerable as you would need to re-register your bond with the new financial institution and cancellation fees would apply at the old bank. This should be your last resort, says Coetzee: “Rather contact your bank to negotiate other terms. The only reason to take this option would be if your bank will not approve a further home loan.”