One miss could cost you dearly

Skipping a monthly instalment on your home loan might see you pay tens of thousands of rands extra in interest - and might also mean you will only be able to settle your bond account years later.

Skipping a monthly instalment on your home loan might see you pay tens of thousands of rands extra in interest - and might also mean you will only be able to settle your bond account years later.

In times of economic hardship consumers are sometimes tempted to default on debt repayments in order to make ends meet.

Dawid Spangeberg of the FNB home loans department advises customers not to skip instalments on their home loans because this will significantly affect the amount they eventually have to repay.

"We realise that this is a tough season for many people," Spangeberg says. "And to make ends meet some customers will even go as far as reneging on some of their credit agreements.

"We advise customers not to succumb to the temptation of skipping repayments on their home loans because this will increase their outstanding debt and might even see them taking longer to finish repaying their bond."

For example, a customer who has a R700000 bond repayable over 20 years, will pay approximately R1574480 including interest over the loan period.

Missing just one instalment might have the following effect:

lTo settle the loan within the original 20-year period the monthly instalment will have to be increasesd to more than R9600.

lIf the instalment is not increased, the loan will only be settled eight months later than originally agreed. The total paid will have increased from R1574480 to R1650296 - R75816 more than originally quoted.

The SA Reserve Bank's monetary policy committee has hiked interest rates 10 times since June 2006. This has seen home loan instalments soar by a whopping 40 percent. The bank's prime lending rate is currently 15,5 percent.

The effect of this is that the bondholder of a R700000 home loan now has to fork out a monthly instalment of about R9477 - up from R7225 in June 2006 when the prime rate stood at 11 percent.

Spangeberg also cautions that if customers skip instalments on their home loan it could negatively affect their credit profile.

This information is registered with the credit bureaux and will be used against them when they apply for credit in future.

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