You are Here > Home > Financial Sense Home > Reduce the impact of that payment holiday

Reduce the impact of that payment holiday

Jul 20, 2020

If you have taken a debt payment holiday, make sure you catch it up.

Reduce the impact of that payment holidayI have previously warned readers against taking the three-month payment holiday offered by the banks unless you had no option. This is because the interest is capitalized and like most holidays, it ends up costing you far more than you realise.

According to Thozama Mochadibane, Head of Customer Delight at Nedbank Home Loans, by mid March up to 35 000 Nedbank clients had opted for some debt relief measure or payment holiday because of either temporary reduced income or no income at all.

While the relief helped clients get through the tough months, Mochadibane points out that this could have longer-term consequences, especially for home loans. Once you are back on your feet, you need to consider options to ensure that your payment holiday doesn’t become a debt nightmare.

Listen to Maya and Mapalo Makhu discussing this in the My Money, My Lifestyle podcast.

Based on figures provided by Nedbank, if you have a R1 million home loan and are five years into paying off your bond, the impact of a three-month debt holiday (R28 950) would add a massive 14 months onto the term of your home loan and cost you R106 000 in additional interest.

If you wish to still pay off your home loan in the 180 months originally left on the period of the loan prior to the debt holiday, you need to increase your bond repayments once you can afford to.

In a year’s time, you could for example increase your bond repayment by 5%. In the R1 million bond example this would be a R483 increase on your R9 650 monthly bond repayments. You will pay off the loan five months sooner than the original loan term and the additional interest you would have paid reduces from R106 000 to just under R2 000.

Mochadibane says you can increase the repayment in three ways:

1) Simply deposit the additional amount into your bond account monthly;
2) Request the bank to increase the monthly debit order by this amount; or
3) Request the bank to restructure the loan in order to shorten the term to 175 months.

All three of these choices will have the same effect on the overall cost of credit and repayment term, thereby undoing the effect of the restructure.

Another option, which is attractive if you cannot afford a 5% increase in your monthly payment, is to increase your bond repayments by 1% each year until the end of your home loan period. In the example of a R1 million home loan this would mean increasing your monthly bond repayment by just R100. You will pay no extra interest and settle your bond nine months sooner than the original loan term.

In this case you could either just add the extra payment each month or do an annual request to the bank to increase the monthly debit order by this amount.

Debt payment holiday calculation

This article first appeared in City Press.

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

Could technology revive the lay-by market?

I remember as a teenager buying on lay-by. Jet stores had a red and orange jersey that I had fallen in love with.  I didn’t have the money to buy it, and in those days store cards were uncommon ‒ and certainly not available to a teenager. I bought the jersey on lay-by...

Stay on top of your repayments

Most agreements to suspend debt repayments or monthly premiums have come to an end. Make sure you understand how this will affect your finances. In the initial stages of lockdown, most banks, insurers and retirement product providers offered installment or premium...

Video: Create a debt repayment plan

We often believe that the only way to pay off debt is with a windfall like a big bonus or winning the lotto. But this thinking gets us caught in an anti-wealth trap. We spend on our credit cards all year and use our bonus or 13th cheque to settle the debt, only to...

Listen: Know the difference between good, bad and ugly credit

Is there such a thing as good credit? What forms of credit should you avoid at all cost? In this podcast, Maya (@mayaonmoney) and Mapalo (@womanandfinance) discuss the good and dark side of credit and whether the concept of the lay-by will come back into fashion as...

Borrowing from days already worked

A salary advance could be an attractive alternative to a traditional payday loan. A few years ago, I came across an article about how Walmart in the US allowed its workers to access a portion of their already-earned salary before month end. For example, if you have...

Income protection for ‘gig workers’ – finally!

By Elmarie Samuel, Senior Technical Marketing Specialist at life insurer FMI (a Division of Bidvest Life Ltd) South Africa’s gig economy is booming. More people than ever before are earning a living as so-called ‘gig workers’ - working as independent contractors,...

Unmarried couples must ensure they have a valid will

By Elmien Pols, Private Client Trust In these interesting times in which we find ourselves, it is not unusual for people to live together, have children, buy properties and run a business together without formalising their relationship, either through marriage or a...

Listen: How to invest for your kids

Whether you are saving for your child’s education or investing for their future, it's tough to know where and when to invest. When is a tax-free investment appropriate? Should you invest in your child’s name? And where should you save for those school fees? Maya...

Don’t let financial jargon throw you off your game

In the hope of assisting investors to make better sense of the current financial climate, Debra Slabber, Business Development Manager of Morningstar Investment Management South Africa, explains some of the financial jargon that is often used during market downturns....

Video: Pay back that payment holiday

We've seen many financial institutions offer their customers a debt payment holiday during these trying times. And while it may seem like a welcome relief, be careful because it might end up costing you a lot more than you realize. According to the Old Mutual Savings...

Pin It on Pinterest

Share This