Can’t pay your bond? Here’s how to keep your home
Homeowners battling to make ends meet, in financial distress and with high debt-to-income ratios don’t have to say goodbye to their homes. But in order to hold onto their homes, they need to be proactive, according to Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.
“Many homeowners are currently battling with financial strain and are not sure whether they will continue to be able to afford the home that they live in,” he says. “If financially distressed homeowners don’t relook at their situation and make the necessary adjustments as soon as they can, they will find themselves in a far more dire predicament.”
Pride, however, stops many homeowners from admitting they need help with their financial situation, and they don’t know where to turn and who to ask for help.
If a financially distressed homeowner sees they will not be able to continue to pay their bond, they should contact their bank, says Goslett. “Many homeowners avoid contacting their bank about their financial strain because they are worried about the house being repossessed, however this is ill advised,” he says, noting that defaulting on the bond repayment will not only result in the homeowner potentially losing their property, it will also lead to a blemished credit record and black listing. “He adds that a negative credit record can make even renting a property difficult due to the fact that most landlords do credit checks on their potential tenants.”
Believe it or not banks will very often assist homeowners where they can by possibly rescheduling the debt or offering financial advice.
Calvin Ndlovu, head of collections at FNB Home Loans, says his bank even offers bond holders payment holidays.
“A payment holiday is offered in the following instances: For retrenchments, maternity leave and where lump sum payout from life insurance or inheritance is expected in the near future,” he says, noting that FNB covers maternity leave for three to 10 months depending on customers’ circumstances; retrenchments from one to 10 months; and where lump sum payouts are expected, one to six months.
Are bond holders who require payment holidays penalised in any way with, for example, higher interest rates or longer payment terms?
“The interest rate doesn’t change,” says Ndlovu. “Customers are encouraged to make arrangements to repay the arrears amount – from a single lump sum payment to payment over a period not exceeding 12 months. The arrangement will include the normal monthly repayment plus a percentage of the arrears.”
Goslett says in certain instances banks may renegotiate the term of the loan from 20 years to 30 years to decrease the monthly bond instalment amount.
“In the instance where the situation has moved beyond the homeowner’s own capabilities, it is advisable that they consult with a professional debt counsellor who can review the homeowner’s circumstances and provide a possible solution or guidance,” says Goslett. “Once the counsellor has assessed the homeowner’s finances they will be able to submit a repayment proposal to all the relevant creditors. An application will then be made in court to have the proposed repayment plan granted to ensure that legal action cannot be taken against the homeowner and the bank will not be able to repossess the property.”
Absa bond holders should be aware that the bank does not offer payment holidays, but prefers a coordinated approach, instead.
“When a customer is under financial pressure and where circumstances may force them to fall in arrears on their home loan account, Absa will at all times endeavour to immediately get in touch with the customer to start a process of engagement to remediate the situation through the use of an array of approved solutions,” says Carel Grönum, head of Absa Home Loans, noting that time is of the essence to develop viable solutions in partnership with the bank. “The customer should always keep in mind that they have a legal obligation to fulfil the terms of the bond agreement and remains responsible and liable for any outstanding balance on the loan account after the sale has been realised, including the cost of the judgement.
“The bank will only initiate the repossession route to resolve the matter after all options suggested by the bank have been exhausted.”
Goslett says that if the homeowner is not in a position to keep their home, it may be prudent to place it on the market.
“If a homeowner is in financial distress sometimes selling the property through the distressed property channel is the most effective way to recover,” says Goslett. “In the case where the homeowner has managed to build up some equity, there might be enough money to cover their outstanding bond, as well as all or some of their other debt. This option could help the homeowner to start with a clean slate and re-establish themselves and their credit record.”
Absa’s alternative approach
According to Absa, its forbearance policy allows it to enter into a solution with its customers to accept less than contractual amounts due when any financial difficulties would prevent satisfactory repayment within the original terms and conditions of the contract.
Special circumstances such as unemployment, maternity leave, disability (temporary or permanent), and ill health are also included in this offering.
- Short-term plans of up to six months and as low as 25% of contractual monthly payments can be offered which can be extended for up to 12 months, after which the customer reverts to full contractual payments. Approvals of such offerings are subject to a full assessment of the customer’s circumstances and financial position.
- Longer-term plans which involve extending the loan term to a maximum of 360 months in order to reduce the instalment can also be considered. This normally only happens subsequent to the short-term plan having been successfully completed.
Help-U-Sell: After the aforesaid option, the bank will encourage customers to sell their properties via private sales or its Help-U-Sell programme. Through Help-U-Sell, customers generally realise higher returns with the sale of the property. Due to the voluntary nature of such a sale the bank will assist the customer through a concession on any shortfall.
- Debt counselling: This process will require a customer to contact a debt counselling agent (DCA) who will consolidate all their debt and make payment arrangements with the relevant financial institutions. The DCA will ensure the customer’s monthly payments are correctly allocated as per the agreed arrangement. The Debt Review process has been designed to help consumers manage their money responsibly and may protect consumers from any legal action that may be taken against them, but only in the event that they honour the new repayment plan. Consumers can apply for Debt Review with the help of the National Credit Regulator. The National Credit Regulator will refer a consumer to a registered debt counsellor in their area, who will assess their financial situation and help them to take correct steps to reduce their financial burden. The debt counsellor negotiates with all of the consumer’s creditors to reach an agreement with them regarding a repayment proposal. If a consumer qualifies, they are then officially placed under debt review and all of their respective creditors will be informed in turn. Customers are reminded that the debt review process aims to leave them with an improved credit score and a perfect credit report, returning them to complete financial wellness.