How to hold on to your home when your finances get out of hand
When unemployment, illness, death or divorce strike, they hit hard, and you could fall behind on your monthly bond repayments. Here's how to hold on to what you've got.
If you're faced with financial woes, don't panic, because there is so much you can do to avoid losing your home.
'The first thing you need to do,' says BetterBond CEO Carl Coetzee, 'is be proactive. Contact your lender as soon as possible to let them know what's happening. Don't let embarrassment or pride stand in your way. In this recessionary climate it can — and does! — happen to any of us. Reach out to your lender before you miss that first instalment — because you are definitely not the first or last 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 keep you in your home than go through the process of getting a debt judgment against you, with the possibility of repossessing the property. But this is an expensive option for banks as well as borrowers.
Other options include:
- Forbearance: Your lender may allow you to reduce or suspend payments for a short period, if you can prove that you're expecting an insurance payout, a retrenchment package or a divorce settlement that will get you back on your feet financially so you can catch up what you owe.
- 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, say, 25 or 30 years, your lender could help you to lower the minimum amount you need to pay each month, which will give you enough leeway to see you through your financial crisis.
However, the later you leave it to let the lender know, the less accommodating your bank is likely to be. So, you really mustn't wait until you're so far in default that you start getting demand letters — or until the sheriff of the court comes knocking on your door!
If your lender does contact you about outstanding payments, respond as quickly as you can. There's still a chance that you can work something out at this early stage. But if you fail to react or keep the lender in the loop, they will most likely go ahead with legal action.
As long as you let them know that the situation is temporary, and they can see you're taking action to rectify it, they'll be more likely to help you hold on to your home.
But you'll need to do a hard and honest assessment on how much money is actually coming in and how much you owe on your accounts. Then, draw up a tight budget that takes out all unnecessary spending. You'll be amazed at how much you'll save by cutting down on cappuccinos and cigarettes!
Work out the minimum you'll need to cover necessities like food, utilities and transport to work. Any money left over should go straight into your bond account, and then towards any other debts. If you're in arrears on other accounts or are likely to be, contact those creditors right away, explain the situation and see what arrangements can be made.
Besides this, you really need to resist the temptation to get into further debt, by taking out a personal loan or paying off some debts with your credit card. This will only make things worse and could damage your credit record.
And lastly, if the problem is likely to be much more long-lasting than you thought, take action and make plans to sell your 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 they'll put you in touch with reputable estate agents who'll take you through the process.
But it all begins with being honest upfront. Full financial disclosure from the start is the way forward!