how to avoid defaulting
03 April 2008

Rising interest rates, rampant petrol price increases and soaring food prices are putting the pinch on consumers’ pockets and threatening their ability to repay their home loans.

Stef Fourie, the Managing Executive of Property Finance for ooba (formerly MortgageSA), says that although South Africans are facing much tougher economic conditions than they have for years, they should do all they can to hang on to their houses as it’s one of the best investments anyone can ever make.

If you are one of the multitude that find it hard to make their payments, consider the following steps you can take to make life a little easier:

Renegotiate your rate
This is perhaps the easiest and most effective method to put more money back in your pocket. Homeowners forget that as prices of their homes rise over time, the ratio of the outstanding amount owing to the house’s value drops making you less of a risk to the lending bank. This will put you in a strong position to negotiate a better rate which can shave hundreds of Rands off your monthly repayments. Struggling or not, it’s always worth trying to get a better rate.

Extend your mortgage term
If your monthly mortgage payments are getting the better of you, consider extending your mortgage term as this will reduce your monthly payments. The downside is that you will end up paying more interest in the long term. However, if it means you are able to continue meeting the minimum mortgage payments, it is worth doing.

Buy a cheaper car
It’s a bit of a South African syndrome to buy expensive cars on credit. The thing is that a car is a depreciating asset whereas a property’s value increases over time. It may be worth considering trading in an expensive car for a more modest set of wheels, freeing up money for home loan repayments.

Trim the luxuries
If you are struggling to pay your mortgage, don’t bury your head in the sand hoping it will go away. Instead, take a calm and reflective view of your financial situation. Look very closely at other areas of expenditure you might be able to trim. For example, DSTV costs and eating out regularly can easily cost more that R1000 a month.

Take in a lodger
Taking in a lodger is not as bad as some people think. If you have a spare room, the extra income could be up to 50 percent of your bond payment. There is some inconvenience, but it is a small price to pay for the extra income. If you are uncertain about taking in an extra lodger, remember you are able to choose who lives with you. Make sure you arrange an interview before he or she moves in.

Payment holidays
If you are experiencing difficulties it is best to ring your bank and explain the situation before you go into arrears. They may be able to make some temporary allowances. This won’t solve your problem, but will buy you some time.

Downsize
This option is probably the most drastic, but might be necessary when all else fails. If you are able to sell your house, you can temporarily rent somewhere cheaper or buy a cheaper house in a different location. The money saved can be used to pay off your mortgage. Due to the cost of moving this option is not easy. However, depending on the severity of your situation, it might be worth doing.

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