A home loan or financing refers to loans/financing granted to individuals for the purchase of residential property, whereby the property is pledged to the bank as a collateral.
Monthly instalments are fixed for a period of time consisting of the borrowed amount, plus the interest/profit charges. Nowadays, semi-flexi and full flexi home loan/financing are available, allowing borrowers to make additional payments on top of the instalments, in order to reduce the principle loan amount. This subsequently lowers the interest/profit charges.
Why you should pay on time?
- You avoid paying unnecessary, additional costs, such as penalty charges.
- You stand to enjoy better interest/profit rate as habitual late payment (3 consecutive non-payments) entitles the banks to convert your prescribed rate to default raye (effectively a higher rate).
- Discipline in paying on time will save you from the trap of increasing costs, starting from 1 missed payment, to the point that you could no longer repay and potentially lose your house.
- Paying on time and avoiding arrears will maintain your good credit score, and this facilitates your other financing applications.
- Paying on time will give you peace of mind, as you will be able to provide a home for your family for life, without the worry of foreclosure.
What happens if you don't make the monthly repayments on time?
For repayments made generally 7 to 14 days behind the due date, late payment charges will be imposed.
What happens if you default on the monthly repayment?
1st month's default - Reminder will be issued via letter, phone call or SMS, and late penalty charges will be imposed.
2nd & 3rd month's default - Reminder via letter, phone call of SMS while late penalty charges continuously imposed.
4th month's default and beyond - Possible recall of the loan, and/or legal proceedings, and finally enforcement proceedings, for example, foreclosure of the property. You credit score will be affected as CCRIS will record your arrears starting from one missed payment.
Is there a solution for defaulters?
Get in touch with your bank the soonest possible to discuss alternative repayment options - possibly restructuring monthly repayments to a lower amount, or lengthening tenure.
AKPK (Credit Counselling and Debt Management Agency) may also be able to assist in restructuring repayments through its Debt Managament Programme.
You may consider withdrawing your EPF savings from 'Account 2' to pay off your home loan/financing, to pay part of the borrowed amount to reduce the principal and lower your monthly repayments, or to pay the monthly repayments.
Renting out a room or two may also help you with meeting your monthly repayments. Defaulters may also consider the option of selling off the property to repay their financing, especially if it could be sold at a profit.
Photo source: smejoinup.com
Thu Nov 28 2019
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