If you are in financial difficulty, your bank is likely to make arrangements that will allow you to keep your home.
When unemployment, divorce, illness or death strikes your family, you may well experience financial difficulties that cause you to fall behind on your monthly bond repayments.
But if this is your situation, you shouldn’t panic, because there is much you can do to avoid losing your home, says Shaun Rademeyer, CEO of BetterBond, SA’s biggest bond originator.
“The first thing you need to do,” he says, “is to be proactive and contact your lender as soon as possible to let them know what is happening. You should never let embarrassment or pride stop you from doing this – and preferably before you miss the first instalment – because you are definitely not the first or only person to hit a financial rough patch.
“The banks have heard it all before, and most of them would much rather make some sort of plan to help you keep you in your home than go through the process of getting a debt judgment against you and then possibly having to repossess the property. This is an expensive option for banks as well as borrowers.”
The options that a bank may offer you:
Forbearance
Your lender may allow you to reduce or suspend payments for a short period if you can prove that you are expecting an insurance pay-out, for example, or a retrenchment package or divorce settlement that will enable you to catch up on what you owe and put you back on your feet financially.
Repayment plan
Your lender may be prepared to let you make regular payments plus a portion of the outstanding amount each month until you catch up.
Recapitalisation
Your lender might agree for you to only pay the interest portion of your home loan instalment each month until your financial situation improves. The capital portion will be added back to your loan, which will thus take longer to pay off.
Restructuring
By extending your loan repayment period from 20 years to 25 or 30 years, for example, your lender could help you to lower the minimum amount you need to pay each month and give you enough leeway to get through your financial crisis.
However, he notes, the later you leave it to address the problem, the less accommodating your bank is likely to be, so you really must not wait until you are so far in default that you start getting demand letters – or until the sheriff of the court arrives to attach your home.
“On the other hand, if your lender does contact you about outstanding payments, you must respond, and as soon as possible. There is still a chance that you can work something out at this stage but if you don’t react, the lender will go ahead and take legal action.
“Meanwhile, any lender that is trying to help you hold on to your home will want to know that the situation is only likely to be temporary, and to see what you are doing to rectify it.
“So the second important thing you need to do is make an honest assessment of how much money is actually coming in and how much you owe on various accounts, then draw up a strict budget that eliminates any unnecessary spending.
“Work out the minimum you need to pay for necessities such as food, utilities and transport to work. Any money you have left after that should go toward your bond instalment and then any other debts. If you are in arrears on other accounts or likely to be, you should also contact those creditors, explain the situation and see what arrangements you can make with them.”
Thirdly, says Rademeyer, you must resist any temptation to get into any more debt, by taking out a personal loan, for example, or paying off some debts with your credit card. “This will just make things worse and could also damage your credit record.”
And lastly, he advises that if it turns out that the problem is likely to be much more long-term than you initially thought, you should once again take action yourself and immediately start making arrangements to sell the property, pay off your home loan and keep your credit record intact. All the banks have assisted-sale programmes for borrowers who find themselves in this situation, and will put you in touch with reputable estate agents who will take you through the process.