"We find that consumers are often tempted to miss the end of year home loan repayment if they have not budgeted for the festive season spending. This is risky from both a financial and credit perspective," said Calvin Ndlovu, head of operations at FNB Home Loans.
Long term effects
Customers need to look at the long term effect of missing a bond instalment in order to fund luxuries around December.
"If you catch up on your arrears there will be no penalties imposed by the bank for late payment, but there will be accrued additional interest on the outstanding capital," said Ndlovu.
Ndlovu went on to explain that it is important to remember, for most people, there is a long stretch from the December pay check to January, which makes it difficult to catch up with the home loan repayments in that month. Rather than miss a repayment, budget properly for your Christmas spending.
While your bank can make arrangements for the repayment of arrears, there will still be an impact on your credit record," said Ndlovu.
A default of part of or the full instalment reflects on your credit record around 20 days after default and will remain there for as long as you are in arrears.
This may impact your ability to apply and receive credit as the active payment record will remain on your credit bureau profile for a period of two years.
After a 30 day period the consequences of the missed instalment will begin to take effect.
"We find that for people who miss one repayment, it takes on average four months to catch up, and after three missed payments the bank will proceed with legal action which could ultimately put you in danger of losing your home," said Ndlovu.
One of the ways in which to avoid the default is to pre-pay into your home loan throughout the year. By pre-paying you can build up a reserve in your bond, and if you are more than one repayment in credit, missing a repayment will have no effect.
"This is a far better and effective option than going into arrears, not only will you save on your credit record but you will also have the advantage of reducing the interest on your capital for the period that you have pre-paid," said Ndlovu.
Another option for clients is to ask their bank for a payment holiday. These are normally three month long terms, in which you do not make any repayments. However, in the next six months following the holiday, you will have to pay extra to make up all the arears missed in those three months.
FNB offers two other options when it comes to payment holidays:
- A reduced payment of 80% of repayment for a period followed by step up payments every 6 months until the arrears are cleared (maximum term of the arrangement will be 24 months).
- Consolidation of debt provided that there is affordability for the customer to repay the higher bond amount and sufficient equity in the property to repay all debts.
FNB advises clients to come in one month in advance, before they would like go on the payment holiday.
Nedbank and Absa do not offer payment holidays. However Nedbank said that, "we do offer a helping hand should clients fall behind with payments or are struggling to make ends meet. We recognise that this is a stressful time for our clients and would like to help."
Standard Bank advises its clients not take a payment holiday. "Standard Bank does not encourage consumers to suspend their monthly instalment on any of their debt.
"It is difficult for consumers to make up the payments and any interest that is incurred. However, when one finds themselves in financial difficulties, it is recommended that contact is made with one's bank to try and find a way forward," said Steven Barker, head of home loans at Standard Bank.