Nov
2012
When not managed properly, mortgage debt can place an enormous amount of stress on homeowners. A fair amount of homeowners are ignorantly labouring under the weight of a home loan that is well in excess of their home’s current value. This may be because of the fact that interest rates are at such a low and they are comfortably able to afford their monthly instalments. As such it doesn’t seem to be a big deal that their homes are currently a liability instead of an asset. Some owners will find themselves back in equitable territory when the values of their homes increase. Some, however, are not that lucky and may feel that the only way to sensibly reduce their indebtedness is to sell their home.
Every strained seller should first consider renting out their homes until they are able to sell their home profitably. However, before doing this one must consider whether it is indeed financially viable to do so, as you will have to consider current bond payments, rates and taxes, repairs and maintenance as well as rental on your new home. You will also have to consider the risk involved should your tenant default on the rental payment at any point.
One of the most practical routes to go is to contact your bank or mortgage holder and negotiate a Short Sale agreement. Banks are often willing to make an arrangement with clients who are having difficulty maintaining payments in order to avoid foreclosure. You will have to prove to the bank that you have no alternative means of settling the debt, and the bank will consider accepting a reduced amount – often between 10% and 15% - to settle the outstanding loan amount. Banks will often allow you a three month mandated period wherein you will attempt to sell your house. However, should you fail to pay just one monthly instalment during this period the bank will most likely cancel the agreement and blacklist you.
Another option you may consider talking to your bank about is reducing the monthly payments, but they are unlikely to do this unless you have already paid off a significant amount of the capital debt. You could also approach your bank about extending the loan’s end-date, which would also lower monthly payments. These arrangements will also most likely result in you paying off quite a bit more on your bond in the long term, but are an effective way of avoiding foreclosure.
In short, it is best to keep your bank as informed as possible if your financial situation changes or you start taking strain financially. Banks are loathe to start foreclosure procedures as it costs them an inordinate amount of time and money. It is best to approach the lender with honesty and sensibility, and most likely they will be willing to assist you in regaining financial stability and retaining your current bond and home. However, once foreclosure proceeding have been instituted banks will generally be ruthless in recovering debt owed to them.
