The current economic climate is causing most consumers to feel the pinch. Contributing to the distress many find themselves in are the 10 consecutive interest rate hikes over the past year and petrol price hikes, which apart from affecting the pocket directly are also a contributing factor to the soaring cost of living, which has reached record highs in the last few months. Add to this the sometimes unrealistic rates and taxes increases, and the recent swell in the cost of electricity, and its no wonder that so many are forced to consider selling their properties. While you may be starting to feel desperate enough to sell your home, it is important to bear in mind that “what goes up must come down”. Like a roller coaster which has reached the not much fun stage, the market will shift back to a more manageable state once the current down-cycle is complete. In the past, the major banks were lenient in their lending policy by offering first time, and even second time buyers, mortgage loans for the full purchase price and sometimes an additional 8% for costs covering transfer and attorney fees, etc. The National Credit Act (NCA), which was promulgated in June last year, was intended to protect the consumer by ensuring that you are not exposed to over-indebtedness and protected from unscrupulous lenders. The combination of the implementation of the NCA and the current market conditions have meant that the Banks have changed their credit criteria completely, and they are no longer as lenient when granting bonds to property buyers. If you are a homeowner, and you’re having difficulty making your monthly repayments on your bond, it’s advisable to approach your Bank as soon as possible to try to restructure your payment. The Banks do not like to repossess homes, as it’s a very expensive exercise, and traumatic for all parties. If the Bank is forced to take legal action, they will place a judgment against you, re-possess your home and you will still be liable for the full amount of the bond plus the legal costs incurred. Most Banks will start valuations for imminent foreclosure after 3 months of un-notified non-payments, so make sure you liaise with your Bank to avoid this. Here are some ideas that you can discuss with your Bank or action on your own:
Do a comprehensive Income and Expenditure to see where your money is going. Cancel all unnecessary expenditure, and those things that you can live without.
Extend the term of your bond, and once you’re comfortable with the repayments and in a better financial situation, the term can be re-negotiated.
Negotiate to pay the interest portion of your bond only, until your situation improves.
If you have been using your home loan as a savings account, speak to your banker about using the advance portion to assist temporarily to cover the bond instalment. In other words, you can suspend monthly payments until the advance portion has been utilised.
If you are a long term loyal client to your Bank, negotiate with them to defer the payments for say 3 months. This will however incur extra interest, as the interest will capitalise, so this should only be used in dire circumstances and over the short term.
Research the fixed rates the Bank has to offer, as fixing your repayment rate will offer certainty in this high interest rate market.
If a bulk of your expenditure is on investments such as unit trusts or endowment policies, arrange with your service provider to suspend payments until your position improves. If the investment has been going for a while, investigate what amount can be surrendered. It is prudent to rather keep your home than the investment. Bear in mind, though, that Life Policies should not be interfered with, as they product will protect your family in the event of death.
If you have a spare room that is not being used, think about taking in a boarder. If none of these measures are successful, your last resort would be to sell your property. If you are forced into this position, bear in mind that the market will turn around. If you get yourself out of debt and start saving in the interim, you’ll be able to afford to purchase property again.
