Advice and Opinion

Don’t let your house fall between the cracks

Repaying your bond one of the most important financial commitments to make

For most people, your home is the biggest asset you own in your lifetime and one that can create long term wealth, if handled correctly. Not fulfilling your bond repayments will not only jeopardise this important asset, but can also have an adverse affect on your entire financial life including your credit record.

“Purchasing and owning a home is a good way to build wealth, however home owners need to make every provision possible to repay their bonds, even when faced with financial difficulties” says Marius Marais, CEO of FNB Housing Finance.

There are a number of serious consequences to defaulting on your home loan.

“Missing even one bond repayment becomes a problem as there are penalties incurred and catching-up, if you are already experiencing financial difficulties, becomes a difficult task,” says Marais.

Defaulting on your home loan negatively impacts your credit profile, and since bond payments are an important instalment the weight of defaulting is quite serious.

“Once you have a negative credit profile you may find this affecting your life in other ways, such as difficulty in finding employment as many employers do some credit checks before employing someone,” warns Marais.

The judgement remains attached to your profile for five years, making qualifying for simple things such as a cellphone contract, credit card or short-term loan very difficult for that period.

Other major issues that arise out of defaulting on bond payments include the high cost of legal fees. If a home loan account is three months in arrears institutions will usually start with some sort of legal action.

“You, as the home owner, are responsible for these legal fees which can run up to R10 000 if a bank needs to take a judgement against you,” says Marais.

In the worse situations, your property could end up on auction if you are unable to settle the arrears. This is a lengthy process and just because the house is sold, won’t mean that you still don’t owe money.

“The home owner will still be liable for any outstanding balance if there is a shortfall after sale,” says Marais. “This means that not only have you lost your asset, and your home, but you are still owe the remaining balance to the bank.”

There are a few ways to ensure that you protect your biggest asset.

“Budgeting is imperative; your bond is one of the first payments that need to be made in the month,” says Marais. “One of the ways in which to make sure that you are not tempted to miss a payment is to use a salary deduction. Another way is a debit order as soon as your salary comes in, this saves you time at the bank and by coming off on the day your salary hits your bank account will ensure that you know exactly what you have left for the month after your house is paid.”

If you are able, put a bit extra into your bond when you have spare cash, not only will this create a buffer, but will save you in the long run in interest over the life of your bond.

For instance, if your bond is R400 000 and you put only R100 extra into it each month, you will save around R35 000 and settle your bond a year and a half early.

Finally, admitting you need help as soon as you realise that you are heading into financial difficulty will go a long way to protecting your home.

“Your bank will make provisions for you to ensure that you keep your home. Repossession is the last resort and a bank will assist you in every possible way to ensure that this doesn’t happen,” says Marais.

“There are a number of solutions that the bank can offer to help you if you are having financial difficulties, however it is up to you to also proactively take steps to help yourself out of the position you have found yourself in – in the first place ,”concludes Marais.

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