Illustration: Colin Daniel

If you are battling to make your home loan repayments, notify your bank. This is the message from all the banks. Often consumers bury their heads in the sand, hoping that their fortunes will turn. But this failure to confront the problem can lead to you losing your home and being saddled with enormous debt for years to come.

“Maintain contact with your bank and keep us informed of changes in your financial position. The bank will only take legal action as a last resort. It is always our intention to keep you in your property,” Calvin Ndlovu, head of collections at First National Bank (FNB), says.

Carel Gronum, head of home loans at Absa, says the banks are generally most flexible and able to assist when you have not yet missed a payment and when you are actively communicating with them about honouring your loan commitments.

“A constructive approach to negotiating with your bank is important,” he says.

Gronum says the appropriate remedy may depend on the reason for your default or your financial difficulty.

“If it is a short-term problem, such as medical problems or going on maternity leave, then it may be possible for us to structure your repayments around that period in order to accommodate you.

“If it is a longer-term problem such as job loss, and you don’t have a new job on the horizon, we may be able to offer alternative solutions that can assist to make the payments more affordable.

“Alternative repayment solutions might include a fixed-rate mortgage contract for a certain period, which will give peace of mind when interest rates are rising, or an extension of the term of an existing mortgage loan, taking into account certain conditions,” Gronum says.

Absa may also offer you help in selling your property if you have no alternative but to sell. Absa calls this service HelpUSell. It is an alternative to foreclosure, which results in a sale in execution – also known as a sheriff’s sale or sheriff’s auction.

Properties sold on a sheriff’s sale or public auction sell for about 30 percent less than properties sold on the open market, Gronum says. For this reason, it is in your interests to rather sell your property yourself – or with the help of your bank.

All the banks offer a similar service to Absa’s HelpUSell and their objective is the same: for you to sell your property as quickly as possible so that you can pay the bank as much of your loan balance as possible.

To make your property more attractive to potential buyers, your bank may even give a qualified buyer a 100 percent bond and a big discount on their bond registration costs.

Ndlovu says FNB is prepared to consider a number of remedies for customers who are battling to pay their home loans. These include:

* Full settlement of the arrears – FNB suggests freeing cash to settle your arrear payments by selling assets or cashing in policies to raise additional funds.

* QuickFix – a special arrangement which may include interest-only payments for a specified length of time, a three-month payment holiday, or reduced instalments over for a specified length of time. A full financial assessment is done and each case is handled according to its merits.

Remember that during a “payment holiday”, interest on the bond will continue to mount, so you end up paying more in the long term, as with the other fixes.

* Debt review.

* The option to sell your property or use FNB’s Quicksell programme.

Ndlovu says the Quicksell programme is a private sale option for customers who volunteer to sell their property quickly.

“A minimum reserve price is agreed upfront and the process is transparent and easy to understand, which minimises the prospect of a prolonged deal,” he says.

If you opt to go the Quicksell route, you can get a discount of up to 25 percent of the current outstanding loan balance, which is applied if there is a shortfall after the sale of the property, Ndlovu says. The customer is then given the option to repay the shortfall interest-free over 10 years. Discounts are not guaranteed, but are negotiated on an individual basis.

For example, if you owe R1 million and your property sells for R800 000, the shortfall will be R200 000. Should a discount of 15 percent be granted, the discount will be 15 percent of R1 million, R150 000. Thus the shortfall the customer will be liable for is R200 000 less R150 000 discount, which equals R50 000.

Nedbank offers an “Assisted Sales” service. Any shortfall owing to the bank after you have sold your property can be paid off over five or 10 years interest-free, depending on what you can afford.

Debt counselling: going the regulated route

Debt counselling is a regulated process whereby a debt counsellor negotiates, on your behalf, with all your creditors, to have the term of each credit agreement extended and the instalments reduced. A debt counsellor can also negotiate for a reduction in your interest rates. But you are only eligible for debt counselling if a debt counsellor finds that you are over-indebted.

If your bank has already instituted legal action against you for the recovery of your home loan debt, your home loan can be excluded from debt counselling, in terms of the National Credit Act (NCA).

But if your bank has not started legal action against you and you go into debt review, the term of your loan will be increased and you will pay a lower monthly instalment. This, however, also means that you will pay more interest over the long term.

Amendments to the NCA, as set out in the National Credit Amendment Bill, which was presented in the National Assembly last week, seek to improve the effectiveness of debt counselling. The bill amends provisions in the Act that allowed for credit providers to take legal action against you if you had been sent a section 129 notice. This is a legal letter from a credit provider notifying you that you are in default and giving you an opportunity to remedy the default. One such remedy is to apply for debt counselling, or to “go under debt review”.

This amendment to the Act makes debt counselling more attractive to consumers, because of the protection it offers people who are trying to |get on top of their debt and rehabilitate themselves.

Some over-indebted consumers are put off debt counselling because it prevents them from being able to access more credit. As soon as you are found eligible for debt counselling, this is noted on your credit report held by credit bureaus. If you are over-indebted, it is illegal for a credit provider to extend more credit to you. You will only be allowed |more credit once your debt |counsellor has issued you with a clearance certificate.

This has adversely affected consumers who are in debt counselling and have managed to eliminate all of their debts with the exception of their home loans – it has had the effect of denying them access to credit that they can afford. But amendments to the Act provide for consumers in debt counselling to be issued with a clearance certificate once all their short-term debts have been settled and they are still paying off their home loans.

Calvin Ndlovu, the head of collections at First National Bank (FNB), says it is imperative that payments under an accepted proposal or consent order be maintained on all debts. “In the event of default while under debt counselling, the bank has the right to terminate debt counselling and proceed with legal action. Despite this, clients are encouraged to maintain contact with FNB in an effort to conclude an arrangement and prevent a forced sale of the property.”

Switching your home loan to another provider

If your home loan debt is becoming too burdensome, switching to a mortgage provider that offers you a lower interest rate might be a solution.

Remember that switching from one mortgage provider to another will cost you. These costs include early termination fees and bond cancellation fees charged by your existing mortgage provider, plus initiation fees charged by the new mortgage provider and legal fees to register the new bond.

Praven Subbramoney, the head of product and sales at First National Bank (FNB), says you need to do a careful comparison, to make sure you are comparing apples with apples.

He says you must consider the term of the loan. If the new mortgage lender is offering you a longer term, that might help you from a monthly affordability point of view, but it will ultimately cost you much more in interest.

Subbramoney says that FNB’s “switching campaign” – which is open-ended – is attracting customers from other lenders owing to its competitive rates. “We are also offering to pay 100 percent of the bond registration fee up to the value of the original loan amount. So, if your home loan with Bank A is R1 million, and you switch to FNB, we will pay bond registration fees on R1 million.”

Carel Gronum, the head of home loans at Absa, says the most important consideration in the decision to switch mortgage providers is the total cost-saving over the course of the mortgage term.

If the switching costs are higher than the total cost-saving over the term, you should reconsider switching, Gronum says.

“Assuming you have an outstanding balance of R1 million on your home loan, the total switching costs – which are usually standard and based on the size of the outstanding balance – will be about R28 300. That is made up of an early settlement fee of R10 000, an initiation fee of R5 700 and legal fees of R12 600.

Assuming you are paying interest of 10 percent and have 10 years left on your home loan term, the total interest payable over the term would be R585 810. But if you are offered a rate of nine percent, the total interest you would incur is R520 109.

“The difference in interest over the term would be R55 700, which would cover the costs of switching (R28 300), and result in a saving of R27 400.”

Subbramoney says you can avoid early termination fees if you give your bank 90 days notice of your intention to cancel the bond and switch to another lender. But bond cancellation fees are unavoidable, he says.

Before you decide to switch, you should consult with your banker or mortgage provider. Your bank may be willing to negotiate.