Monday | 18 May | 2020
By Sanette Viljoen
During the Covid-19 pandemic the current lockdown undoubtedly had an effect on many people’s income and financial obligations, including monthly instalments on a homeloan. Perhaps you have heard about the payment holidays and are thinking of applying for it. It is, however, important to understand how a payment holiday works and whether it will change the interest rate, loan term or the monthly instalment.
Die payment holiday on your bond provides a measure of flexibility in the repayment of your bond by enabling you to either stop or lessen your monthly instalments for up to three months. This can provide much-needed help when you need it, but it is not suitable for everybody.
A number of banks have announced plans to help their clients during the difficult times that lie ahead. This debt relief is limited to clients who are in good standing with the bank. This means that banks will only consider granting you a payment holiday if you are not among the 10 million consumers who have overdue debt.
It is important to know that your monthly instalment as well as the total amount that will be payable will be increased as soon as the payment holiday ends. If you decide to apply for the payment holiday it would be wise to discuss the following options with your banker:
- Spread your deferred payments over the remainder of the homeloan term. This means that you will see an increase in your monthly instalment as soon as your payment holiday is over. The shorter the term of your homeloan, the higher your monthly instalment. Think of the impact that this increased monthly instalment will have on your future income and whether you will still be able to meet your liabilities taking into consideration the increased instalment.
- Extend the duration of the homeloan term: If you increase the term of your homeloan,
- your monthly instalments could perhaps be lower, but you will be paying off your homeloan over a longer period, which means that you will pay more interest over the term.
The biggest benefit of a payment holiday is that it will relieve the financial pressure a bit, but there are different important aspects that you should keep in mind. While you are not paying off your homeloan, the interest on the balance will still be accumulating. When the payment holiday ends the outstanding balance and payments will also be higher than before the holiday.
From the above it is clear that, although a payment holiday can relieve the pressure for a short while, it would be better to cut out unnecessary or luxury expenditure and make the necessary payments on your homeloan.
* All information was correct at the time of publication.