With lockdown and its economic fallout causing untold damage to the economy, more and more South Africans are finding themselves on unpaid leave, reduced salary packages or laid-off entirely. This is placing many homeowners under severe stress when it comes to keeping up with their mortgage repayments. It’s every homeowner’s worst nightmare – realising that no matter how much you scrape and save, you just don’t have enough money to cover your bond repayments. Thankfully, experts say it doesn’t have to be the beginning of the end for your home.
The most important thing for existing homeowners to know right now is that there is hope – they are not powerless in the face of their challenges. In fact, lenders are being extremely supportive of clients in financial difficulty due to the impact of COVID-19. Leonard Kondowe, National Admin Hub Manager for Rawson Property Finance, advises further on what to do if you find yourself in this scary situation.
Step 1: Get in touch with your home loan financer/bank
“It can be very tempting for bondholders to just ignore the problem and hope their bank doesn’t notice a missed payment or two,” says Kondowe. “This is really the worst thing you can do, delaying the inevitable and putting your lender in a far less sympathetic position when they eventually contact you. It’s far wiser to approach your bank as soon as you realise you’re in financial difficulty, and leverage their experience to find a workable solution to tide you over what is hopefully a temporary financial crisis.”
Some banks are able to handle enquiries about mortgage repayments via their call centre, but most will require you to visit your local branch and sit down with an expert. It’s often easiest to start with a phone call and let the call centre direct you to the appropriate person or place.
Step 2: Be open and honest about your situation
When approaching your lender, Kondowe says documentation showing your income and expenses, and any special circumstances that may have contributed to your financial difficulties – like retrenchment – is vital.
"Don’t bury your head in the sand, fall behind on your mortgage payments and just hope all will be forgiven,” he says. “Lenders are open to compromise, but they’re not going to overlook those who default without explanation. You need to be able to explain why you can’t meet your obligations, and back that explanation up with real facts and figures,” he says. “Nine times out of ten, if you can prove genuine financial distress, your lender will be willing to help you out.”
Step 3: Work with your lender to find a solution
While it’s easy to think of your bank as the enemy, Kondowe says that really isn’t the case for distressed bondholders.
“Banks aren’t in the business of repossessing homes – it’s far more beneficial for them to help you over your rough patch, retain a loyal client and avoid the moral and legal dilemmas of trying to evict a person from their home,” he says. “As such, they really do go the extra mile to help homeowners find sustainable solutions to their financial problems.”
Many loan agreements have built-in credit insurance which could help homeowners cover bond repayments until they’re back on their feet. For those without insurance, however, Kondowe says payment holidays and bond restructuring are both popular compromises offered by lenders.
Step 4: Understand any long-term effects on your bond
No matter what solution you and your bank settle on, Kondowe says it’s important to understand the long-term effects it will have on your bond.
“Keep in mind, any delay to your repayments will increase the total amount of interest you pay over the lifetime of your loan,” he points out. “That’s a far better option than having your home repossessed, but it’s not something to be taken lightly. I’d urge homeowners to still prioritise their home loans, and pay as much as they can afford to, rather than taking undue advantage of debt restructuring and adding to their financial burden down the line.”
Make sure you understand this before signing on the dotted line and ask about alternatives if you’re not comfortable with the numbers.
Step 5: Stick to your new agreement
Once your bank has gone to the trouble of helping you find a solution to your financial crisis, it’s important to do your part to stick to the agreement you made. If not, you could find yourself in even more of a pickle – and your bank is far less likely to be sympathetic the second time around!
“Remember, you’ll be signing a legal agreement with your bank and that can have serious consequences if you don’t uphold your end of the bargain,” says Kondowe. “If you have any doubts about your ability to follow through on the agreement, rather raise those questions before signing and explore any alternatives that may be available to you.”