Don’t Blow Your Bond This Festive Season

Home Loans Institutions cautions consumers against using their December bond repayment to fund luxuries over the festive season such as holidays, entertainment and presents.

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.

Customers need to look at the long term effect of missing a bond installment 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. However 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 within the 30 days.

While your bank can make arrangements for the repayment of arrears, there will still be an impact on your credit record.

A default of part of or the full installment 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 effect of the missed instalment will begin to take effect.

We find that for people who miss one repayment, it takes the average of 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.

One of the ways in which to avoid the dreaded default is to pre-pay into your home loan throughout the year.

If you build up a reserve in your bond, and 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.

Source: Property24/FNB