What to do if you can’t pay your instalments on time?
No one of us is immune from financial risks. You may lose your job, fail gravely ill or face an unexpected and expensive cost and no longer be able to pay the monthly payments of your loan. Facing temporary or lasting difficulties, you have to take certain measures if you don’t want that things are getting worse in the forthcoming weeks and months.
Contact your banker
In the event of delay, suspension or cessation of payment, the first thing to do is to contact as soon as possible your bank. It is useless to bury your head in the sand: time play against you and the longer you wait, the less solutions you have. As a first step, the bank will send you payment reminders and, after three consecutive unpaid monthly instalments, a formal notice sent by registered letter reminding you the consequences of non-payment. If all the letters remain unanswered, the bank may legally terminate the loan contract and require immediate repayment of the loan balance plus interests for delay. The cancellation of the loan contract may be followed by a wage assignment if you have signed such a clause at the time the loan was granted. For home loans, the bank may require the sale of the real property.
Try to find friendly solutions
In order to prevent that happening, the best thing to do is to talk as soon as possible to your banker and to find with him a solution to reduce your monthly financial burden. A friendly solution is in the interest of all parties: the lending institution and the borrower. For home loans, several solutions can be found after the credit analysis and the agreement of the Credit Committee.
The first solution is to defer the payment of principal. Instalments are composed partly of principal and partly of interest. In order to reduce the monthly amount, the bank may, under certain conditions and in a discretionary manner, grant a moratorium or a temporary deferral of payment of principal. The interests are not deferred and may be increased during the whole moratorium term.
The second solution is to extend the home loan period. Some home loans like home loans with a variable rate allow you to extend the term. The repayment of principal will be spread over time and reduce your monthly instalment. For a home loan with a fixed rate, a renegotiation, or a new home loan contract, is to be expected.
The third solution is to make partial early repayments. If you have available savings, you can make an early partial repayment of your home loan, which will reduce your monthly instalments. Early repayments without incurring any penalty payment at all are only authorized for variable rate home loans.
The last solution is to repurchase your home loan. If you have taken a loan in a period of high interest rates, this may be the best time to negotiate a lower rate. The interest rates are actually very low and can allow you to reduce the amount of your monthly payments.
Of course, all the solutions mentioned above will incur additional costs but they are far more desirable than the sale of your home for which you have spent so much time and money.
Often you hear people say: “Anyway, until I have paid off my home loan it’s the bank who owns my house”. But is it true?
It is always the same question that every one of us is asking before signing a home loan with his bank. To gain a more objective overview, let’s analyse them one by one with their respective advantages and disadvantages.
The rate remains fixed for a pre-defined period and, at the end of the period, is subject to a revision. The pre-defined period can vary from one bank to another but is generally 3, 5 or 10 years.