It is every home owner’s nightmare to realise that no matter how you scrimp and save, you just don’t have enough money to cover your bond repayments.
And with the cost of living escalating every day, this has become all too common in South Africa.
But it does not have to be the beginning of the end for your home, says Leonard Kondowe, national admin hub manager for Rawson Property Finance.
He shares his advice for home owners who find themselves in this situation.
Step 1: Get in touch with your home loan financer/bank
It can be tempting for bondholders to just ignore the problem and hope their bank doesn’t notice a missed payment or two, but Kondowe says it is the worst thing one can do. It also delays “the inevitable” and makes the lender “far less sympathetic”.
“It’s far wiser to approach your bank as soon as you realise you’re in financial difficulty, and leverage their experience to find a workable solution to tide you over what is hopefully a temporary financial crisis.”
He says some banks are able to handle inquiries about mortgage repayments via their call centre, but most will require home owners to visit their local branch and sit down with an expert.
“It’s often easiest to start with a phone call and let the call centre direct you to the appropriate person or place,” Kondowe says.
Step 2: Be open and honest about your situation
Once you’ve found the right person to talk to, Kondowe says it’s essential to be as open as possible and bring proof of the issues that are causing your current financial crisis. That includes documentation of your current income and any job losses, unexpected expenses or overwhelming debt.
“The most important thing is to be honest - don’t try to manufacture a fake story for sympathy. Your lender is going to require proof of any claims you make, and any lies or embellishments are only going to work against you.”
The cost of living in South Africa is escalating every day. Picture: NRD
Step 3: Work with your lender to find a solution
While it’s easy to think of your bank as the enemy, Kondowe says that really isn’t the case for distressed bondholders.
“Banks aren’t in the business of repossessing homes - it’s far more beneficial for them to help you over your rough patch, retain a loyal client and avoid the moral and legal dilemmas of trying to evict a person from their home.
“As such, they really do go the extra mile to help homeowners find sustainable solutions to their financial problems.”
These solutions will vary based on specific circumstances, but could include a temporary or permanent reduction in your monthly repayments, a brief repayment “holiday”, a debt consolidation proposal, or any one of a variety of other options.
In a worst-case scenario, he says the bank could even assist home owners in selling their properties for the best possible prices by offering prospective buyers preferential home loan rates.
Step 4: Understand any long-term effects on your bond
No matter what solution is settled on, Kondowe says it’s important to understand the long-term effects it will have on a home owner’s bond. Any reduction in repayments, unless followed by a proportional increase, will result in an extension of the overall bond term.
“This means you’ll be paying more interest in the long-run, but that amount will vary depending on how much longer your term is. Make sure you understand this before signing on the dotted line and ask about alternatives if you’re not comfortable with the numbers.”
Step 5: Stick to your new agreement
Once a bank has gone to the trouble of helping you find a solution to your financial crisis, it’s important that home owners stick to the agreement made. If not, they could end up in even more of a pickle and the lender is far likely to be as sympathetic the second time around.
“Remember, you’ll be signing a legal agreement with your bank and that can have serious consequences if you don’t uphold your end of the bargain.
“If you have any doubts about your ability to follow through on the agreement, rather raise those questions before signing and explore any alternatives that may be available to you,” Kondowe says.