Buying a house or an apartment is one of the biggest financial commitments South Africans can make.
Many people use their properties as investments or rentals in order to make more money. Whatever the reason for the purchase, every single buyer must undertake that they are responsible for the mortgage and that they are able to pay it every month.
It sounds pretty simple, right? Unfortunately, not everything is as clear cut as it seems in our heads.
More and more people are struggling to make ends meet after they buy a home. Even with careful budgeting and planning, no one knows what the future might hold and no one knows when emergencies might strike.
During these unexpected times, homeowners often don’t have savings accounts readily available in order to pay for this expense. They could then find themselves in the position where they are unable to meet their monthly mortgage payments.
Banks do not want to repossess homes, but they have to in order to cover outstanding loans and courts also support this approach. Even though it is a last resort, it is one that is always an option for financial institutions.
So what should you do if you can’t pay your mortgage?
Speak to the bank
As soon as homeowners see trouble brewing on the financial front, they should talk to their banks – sooner rather than later.
Worrying about losing a home and getting into debt is extremely stressful and some of the stress can be avoided by contacting the lender in order to negotiate a way forward.
Lenders are more understanding than people think and they often lend a listening ear if their borrowers speak up BEFORE the situation becomes too dire.
There are a few options available that lenders can look at in order to relieve the situation if they tackle the debt crisis before it escalates:
- They may choose to restructure payment plans, agreeing to accept interest-only payments for the time being.
- They can also suggest reduced instalments over a specific period or even a 3-month “holiday” even though the latter is not ideal as interest fees rise.
In most cases, lenders work with homeowners in order to find common ground. It should be noted, however, that any solutions offered will only be temporary and will not last in the long term.
Debt-proof your home
The ideal thing to do would be to avoid getting into debt at all costs.
There are a few things that homeowners can do in order to avoid this:
- Pay a larger deposit
A bigger downpayment will mean buyers will need a smaller loan and they can negotiate better interest rates.
- Secure a lower interest rate
Shop around at different banks to see what is on offer. Choose the loan that offers the lowest interest rate. Don’t jump into the best offer that you see. It can really help decrease costs on a month-to-month basis.
- Pay extra each month
If you are in this type of financial position try to pay a little bit more into your home loan. This will decrease the amount a lot faster. A small amount like R500 extra a month can make all the difference.
- Pay attention to the repo rate
The Reserve Bank’s Monetary Policy Committee meets in order to determine the repo rate. It is usually pretty clear which way the rate is going to go. If it seems like it is going to increase, it would be wise to budget for it and try to save as much as possible in order to accommodate emergencies.