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What to do if you can’t pay your home loan

What to do if you can’t pay your home loan

A home loan is a 20- to 30-year commitment. Anything can happen during life’s ups and downs. Whether it is retrenchment, the death of a breadwinner, severe illness or challenging financial circumstances, we all go through good months, as well as bad months. So what do you do if you have exhausted all your back-up plans and you simply don’t have the money to pay your monthly home loan repayment? All is not lost. Here are seven options you can consider to safeguard your home.

1. Consult with a professional financial planner

There is no one-size-fits-all solution for not being able to pay a home loan because our personal circumstances are unique. A financial planner can assess your individual situation and may be able to advise you on the best steps to get you back on solid ground. Planners work with personal finances, investments, assets and financial institutions every day, giving them in-depth knowledge and experience in building wealth and dealing with financial distress.

2. Contact your home loan provider

Whether you are in temporary distress or long-term financial hardship, the banks already have solutions to protect you from losing your home. You are a client and they will try to help you, to keep you as a client. The sooner you approach your provider, the better. It is best to be open and honest with them so they understand the severity of your circumstances. This will help them offer you a solution that best suits your circumstances. Depending on which provider you are with, they may offer you:

  • A loan forbearance: you can reduce or suspend your home loan repayments for anything up to 12 months.
  • An extension on your home loan: for example, you miss six months repayments which get added to the end of your loan term.
  • A period of reprieve or a repayment holiday: this is a set length of time that you don’t need to make your repayments – usually when your financial distress is only temporary.

3. Consider refinancing your home

If you’ve taken out a 20-year loan, you could consider refinancing it for a longer term. This will reduce your monthly repayments, making your home loan more affordable. If you choose this option, make sure you know how much extra interest you’ll be paying as a result of the longer payment term. You can always revert back to your 20-year loan when you are back on your feet. Alternatively, you can pay more off on your home loan when your finances are back on track.

4. Speak to a reputable debt counsellor

Debt counsellors can consolidate your debt and negotiate with your providers to bring all your debt repayments to a more manageable level. Debt counsellors have long-standing relationships with most creditors, giving them more bargaining power over your debt. They also, like financial planners, assess your financial circumstances to see what you can afford. Just make sure you approach a reputable debt counsellor. There are, unfortunately, many scammers out there that could leave you worse off in the long run.

5. Rent your home out and downscale

A smaller home or flat will reduce your water, electricity and general day-to-day costs. If you love your home and don’t want to sell it, this is a good option because as soon as you are financially stable, you can give your tenants notice and move back home. The challenge is that you must find decent tenants to make sure they take good care of your home. This is often not easy to do, which is why it is probably better to go through a rental agent. These agents do background and reference checks. They also have lease agreements that protect you and your home. They keep the tenant’s deposit and make sure it is returned when your tenants move out. There is a cost involved, but it is worth it.

6. Sell your home

If your financial pressures are long term, with no end in sight, you may have no other option but to sell your home. This is not the nicest option but in dire straits, it may be your only option. It’s better to sell your home than have it repossessed. If you have family that will take you in, you could pay the bank off what you owe them and put the remaining money in an investment until you are in a better financial position. If you manage to keep this money invested, you can use it as a deposit on a new home when you are financially stable.

7. Give your home back to your provider

This is called a deed-in-lieu foreclosure. It means that you voluntarily turn over ownership of your home to your provider to avoid the foreclosure process. You may avoid lengthy and difficult legal proceedings, but it does impact your credit score negatively. This is not the greatest option but, in some circumstances, it is unfortunately the only option.

If you have time to consider your options, you could also approach a BetterBond home loan consultant to find you a better deal on your home loan. This can reduce your monthly repayments, giving you some financial breathing space. BetterBond approaches multiple banks and negotiates the best interest rates. It’s always better to be proactive than reactive, especially when it comes to the financial security of your loved ones. 

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