The average home loan period spans twenty years, a relatively long period during which there are likely to be several financial ups and downs. Chances are that homeowners will face tough times at some stage during this time span, either because of external economic conditions or personal circumstances.
Steven Barker, head of home loans at Standard Bank says that should customers find themselves in a difficult position, it is important that they communicate openly with their bank.
“Many people fear telling their bank that they are not in a position to pay back a loan. However, the more cooperative customers are, the more likely they are to keep their homes. Remember, it is not in the bank’s interest to re-possess properties – our aim is to try to help customers keep their properties wherever we can.”
With this in mind, Barker advocates being absolutely honest with the banks as soon as you think you might run into trouble.
“It’s no good omitting information because you think it will buy you more time,” he says. “For example, it’s not wise to tell your bank that you cannot pay for a month or two if you have lost your job and will not be able to pay until you have found another one. Be upfront and honest, so the bank is aware of all factors that can affect your ability to pay off your home loan.”
Understanding the exact circumstances will go a long way towards the bank being able to come to an arrangement. The nature of this will differ from customer to customer. Some may be given a payment holiday, during which they need not make any payments, while others may benefit from an extended home loan term with lower monthly payments. Some financially distressed customers may be allowed to make part-payments.
Re-payments can also be staggered. Although the bank requires monthly re-payment, nothing prevents you from paying weekly if this will assist with cash flow – for example if you find new employment that pays at the end of each week instead of monthly. As long as your smaller payments add up to the monthly amount no fees or penalties apply. There are other options to heavily indebted customers. For example, banks can help consolidate debts and free up cash flow.
“However, some customers under severe financial duress will have to sell their properties because they are simply too expensive. This is always a last resort, and is taken in the customer’s best interest.”
Most of the banks have established special selling mechanisms and programmes to facilitate distressed sales. For example, Standard Bank offers ‘EasySell’ which helps customers by listing their properties with reputable estate agents who offer a pre-negotiated discount on the sales commission. The programme also offers customers the benefit of reducing the outstanding balance.
Barker points out that a major advantage of engaging honestly with your bank at the first hint of financial difficulty is that it can help you avoid blacklisting which can have a long term impact on your financial future.
“Don’t wait until it is too late. Let us know that you will be facing problems so that we can help you before you get into a deeply stressful situation. Ultimately, your first call when you realise it will be difficult to meet your home loan repayments should be to your bank. That way, we can make every effort to re-structure your loan straight off the bat.”