Finding your home loan repayments difficult to meet? You are not alone in
this predicament, but you must talk to the bank to avoid losing your home.
Many consumers found themselves in hot water last year, after the hike in
home loan rates to round 2,4 percent in September.
Claire Gebhardt-Mann, of the Banking Council, says there is usually a nine
month lag for the full impact of repossessions to be felt, so the number of
homes repossessed only peaked around May this year.
In addition to the high interest rate last year, thousands of job losses
added to the financial woes of some consumers. And borrowers are still
losing their homes, for although interest rates have dropped almost nine
percentage points, this was not enough to take the heat off people who were
already in trouble, Gebhardt-Mann says.
Should your house be repossessed, you lose not only your home, but all the
money you have paid towards it. Banks say they are in the business of
lending money, not of owning houses, so they will attempt to restructure
your debt as far as possible.
Remember, no bank will "write off" any money you owe. You will still owe the
outstanding amount on your home loan, as well as any arrears, and more
importantly, the interest will continue to accumulate on what you owe.
Banks have to manage the risk of losing all the money they have lent you and
you can only be expected to be accommodated to a point. If all else fails,
you must take what may be a tough emotional decision and sell your home
yourself. It is vital that you sell your house sooner rather than later, as
every month your repayments are outstanding, your debt to the bank is
growing.
The foreclosure process takes months and the bank has to follow a legal
route in order to gain possession of your property. Remember that apart from
the money outstanding on your home loan, the bank adds all the other costs
that it incurs in this process.
The repossession procedure is:
- When your repayments become irregular, the bank will contact you to
negotiate payment and determine your position;
- If this is not successful, the bank will transfer the matter to its legal
department;
- The legal department will arrange for a summons which asks you to pay up;
- Should you fail to respond, the bank will ask the court for a judgment;
- If the bank gets judgment against you, it will arrange for the attachment
of your property;
- The bank will put up your property for sale at an auction; and
- If necessary the bank will buy the property itself for a nominal
amount.
A Case Study
Crystal Wood, of Cape Town, owed the bank just over R100 000, her four
bedroomed house was sold for R145 000 and all she pocketed was R6 000.
The rest of the money was swallowed up in legal and other costs.
The costs that the bank added onto Wood`s outstanding loan of R100 000 by
the bank that repossessed her house included:
- Home owners insurance of R578;
- Legal costs of R1 611;
- Payment of security guards of R4 174;
- Payment of outstanding rates of R7 984;
- Electrical wiring certificate of R640;
- Beetle inspection of R299;
- Agents commission of R7 975; and
- VAT of R13 153.
Explaining some of the items that were added to Wood`s account, Botha
Huisamen, of Absa`s debt recovery unit, says home owners insurance was added
to protect the bank in the event of the property being vandalised. Also a
security guard was placed at the premises from the time that the bank bought
in the property, until it had been resold.
Due to Absa being a registered VAT vendor, the bank had to pay VAT when the
property was bought in, as well as when the property was sold.
There were also rates outstanding on the property and before a property can
be resold, the local authority requires that the rates be paid up to date.
Wood firmly believes she was not behind with her bond repayments. She was
under the impression that she was around R10 000 ahead with her payments.
But Absa insisted she was R28 000 in arrears.
Wood says the bank did not explain to her how it reached the figure of R28
000 and also that she was denied a distribution statement, following the
sale of her house.
Huisamen says Wood made three arrangements to repay her loan, but did not
stick to them.
She was 17 payments behind. This amounted to R24 310. With the interest
accumulated on the outstanding amount and R2 900 in legal fees, Wood owed
the bank R28 000, Huisamen says.
Handy Tips
The following tips should help you avoid a situation where your
house is repossessed by the bank:
- Live within your means. Never take on more debt than you can afford to
repay. Even if you can afford a property of a particular value now, think
ahead of what would happen should interest rates escalate, as they did in
the second half of last year;
- Keep up with your monthly home loan repayments at all costs. If you don`t,
you end up paying interest on interest and the debt adds up at a phenomenal
rate; and
- If you are unsure of where interest rates are heading, go for a fixed
interest rate, or reducing interest rate, so that you know exactly what your
home loan commitments will be over a period of time. This is especially
important should you buy when interest rates are near or at a low in their
cycle, as they are now, and it is also important in the first two years of
owning your first home, when your financial resources are
stretched.