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WORDS: DEBBIE LOOTS  •  IMAGES: SHUTTERSTOCK

There’s no denying that the majority of South Africans find themselves in some kind of financial predicament caused by Covid-19. The infection rate is yet to peak locally, which means that lockdown – in one of its various stages – remains on the cards for the foreseeable future.

People’s salaries are cut or they have lost their jobs, and many are struggling to hold on to their homes. Luckily South Africa’s major banks have opened their purses to help homeowners keep up with bond instalments through payment holidays and other relief measures – but not without strings attached, it seems. Are they really helping or are they just setting customers up for increased debt down the line?

Options

Not according to head of customer delight at Nedbank Home Loans Thozama Mochadibane. She agrees that taking a payment holiday is a popular choice for homeowners, but that there’s a perception that it may cause clients financial problems in the long run. This is especially due to the fact that the capitalisation of interest and other fees at the end of the payment holiday could be quite substantial. However, Nedbank’s automatic restructuring plan offers three options to help customers avoid incurring more debt.

No surprises after your holiday

Considering each client’s specific financial situation, these options are aimed at helping them keep their homes without leaving them with a surprise debt burden after their payment holiday. In the table (below), Mochadibane uses the example of a customer with a home loan of R1m to illustrate how the various options work.

Mochadibane says helping customers with debt relief is nothing new for Nedbank home loans. The bank has been offering distressed restructuring since 2009, which saw 35,500 clients keep their homes.

“While we’re pleased to help clients through these difficult times, we’re also committed to supporting them to regain their financial wellbeing and economic sustainability.”

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Flexibility

Managing executive of Absa Home Loans Geoff Lee says Absa’s payment relief programme is designed to be comprehensive, inclusive and simple. It has no additional admin or penalty fees; no documentation is required and flexible repayment is available. Launched on 1 April, the programme is part of a broader range of support mechanisms for their customers.

“The programme allows customers flexibility in their monthly cash flow by not requiring any payments for the duration of the payment relief,” he says. “Once the relief period lapses, the minimum payment reverts to the original instalment, and the term is extended.”

This means your instalment doesn’t increase after the relief period and customers can still repay higher amounts into their loans (accelerated payment). This will reduce the total cost of credit significantly. If they cannot repay more than the minimum instalment, the loan will remain in good standing.

If, for instance, your income recovers faster and you’re able to ‘catch-up’ the three months, you’ll get the interest benefit. This would result in much less interest being charged over the life of the loan. Geoff Lee, managing executive, Absa Home Loans

Saving on total cost of credit

“Payment relief is not a payment holiday,” says Lee. “In fact, it’s a short-term cashflow relief solution.” Customers who can afford to continue paying their monthly debit order, should continue to do so. You’re not obliged to use the full term, and can settle loans earlier.

“If, for instance, your income recovers faster and you’re able to ‘catch-up’ the three months, you’ll get the interest benefit,” he says. “This would result in much less interest being charged over the life of the loan.”

See Absa’s table (below) that illustrates the impact of a payment holiday on a home loan of R500,000, and the cost implication.

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Consolidate

The Cash Relief Plan (CRP) and the Payment Break are the two solutions that First National Bank offers their clients to recover from post-holiday payment blues, says Mfundo Mabaso, growth head of FNB Home Finance.

The CRP assists customers with all their FNB instalments for up to six months, ensuring that the customer keeps up to date with their commitments. “The instalments are consolidated into a separate facility that the customer is expected to start repaying after the relief period,” says Mabaso. “This facility has a term of up to 60 months and an interest rate of prime (7.25%) which is considerably lower than an unsecured (+18%) rate.”

The Payment Break is specific to a product that the customer holds with FNB i.e. a home loan, and gives customers a payment break of up to three months. The customer’s home loan term is then extended to help them keep the repayment the same.