How financial institutions can assist with easing the burden of bond repayments

Purchasing a home is a significant financial commitment that requires careful planning and long-term dedication. When taking out a bond or mortgage, potential homeowners agree to repay the borrowed amount with interest over a specific period. Managing bond repayments is crucial for maintaining a good credit score, building equity, and achieving future financial goals. However, economic uncertainties and unforeseen circumstances can make it challenging for homeowners to meet their bond instalments on time. In such times, financial institutions can step in to offer assistance and support.
 
Antonie Goosen, Principal and Owner of Meridian Realty, emphasizes the importance of being well-informed when it comes to finance options while buying a home. He suggests consulting with estate agents, bond originators, or financial service providers to make realistic and attainable goals.
 
Considering the finance options available, potential homeowners can benefit from using bond calculators provided by major banks and bond originators. These online tools help estimate monthly instalments, interest rates, loan terms, and other associated costs, enabling individuals to make informed financial decisions.
 
Additionally, making extra payments above the minimum instalment required by the bond can help reduce the outstanding balance, lower interest costs, and shorten the loan term. While all five major banks allow clients to make extra payments, it’s essential to be aware of any potential penalties or fees.
 
Goosen says when selecting the type of interest rate for their bonds, clients can choose between variable and fixed interest rates. A variable interest rate changes with the South African Reserve Bank’s repo rate, while a fixed interest rate remains the same for a specified period. The best option depends on the client’s personal situation and risk profile.
 
“Moreover, most bond agreements include built-in credit insurance, which can help cover bond repayments during difficult times such as job loss, illness, or divorce. Potential homeowners should ensure they have access to credit insurance when taking out a mortgage.
 
“Given the economic turbulence in South Africa, many individuals face difficulties in paying their bond instalments on time or in full. In such situations, Antonie Goosen advises homeowners not to ignore the problem but to contact their banks promptly and explain their situation. Financial institutions can offer various options to ease the financial burden and avoid defaulting on bond repayments and home repossession,” says Goosen.
 
Some of the options available to assist with bond payments include:
 
Payment Holiday, Debt Restructuring, or Reduced Interest Rate: A payment holiday is a temporary suspension of bond repayments to overcome a loss of income or unexpected expenses. Debt restructuring involves modifying the loan terms, such as extending the repayment period or lowering instalment amounts, to make it more affordable. A reduced interest rate may be offered to clients with a good credit history and who meet specific criteria.
 
Debt Review or Debt Counselling: Debt review is a legal process that helps over-indebted consumers restructure their debt into a manageable repayment plan. A debt counsellor negotiates with creditors on the client’s behalf, proposing a new payment plan with reduced monthly instalments and interest rates. While under debt review, clients are protected from legal action and harassment from creditors, but they cannot apply for new credit until the debt is cleared.
 
Credit Life Insurance: Credit life insurance covers debt repayments in the event of death, disability, illness, or retrenchment. Homeowners can claim from insurance if they are unable to pay bond repayments due to any of these reasons.
 
Financial institutions in South Africa are aware of the challenges faced by distressed bondholders. Many banks offer specific programmes or solutions, such as dedicated debt care centres, home loan payment relief centres, bank-assisted sales programmes for properties, and debt review and debt counselling services.
 
Goosen advises homeowners to carefully consider all available options and plan for the worst-case scenario. He emphasizes the importance of taking out necessary insurance, mindful spending, and seeking consultation with professionals when purchasing a home.
 
“In these difficult economic times, financial institutions play a crucial role in providing support and relief to clients facing bond repayment challenges. Offering financial assistance over an extended period can help homeowners maintain their good standing and avoid adverse credit scores, benefiting all parties involved,” concludes Goosen.