There are 2 kinds of personal debt that you can have in South Africa – Secured debt and unsecured debt. Debt counsellors are able to generate savings on both and they follow their own rules. When it comes to putting home loans under debt review there are several benefits and some common misconceptions.
Benefits to having your home loan under debt review
There are many advantages to going under debt review but when it comes to your home loan the law affords certain different allowances:
Depending on the status of your home loan debt counsellors can generate a saving on your current instalment of 20 to 25%.
Your interest rate becomes fixed and does not change during national interest rate hikes.
You get protection of your asset and, as long as you keep up with your monthly payments, no legal action can be taken while under an active debt review
If there is more than one participant on a home loan, then the debt review extends to all parties which can mean a wider array of savings on personal debt.
If there are any arrears on the account (as long as there is no summons or legal action under way) then these are capitalised and added to the total outstanding balance.
Misconceptions regarding your home loan under debt review
There are some common mistakes that people make regarding home loans when considering the possibility of going under debt review:
You do not need to finish paying your home loan off before you can receive your clearance certificate. Once vehicle finance and all unsecured debt is paid off then the debt review can be removed, and you can return to paying your original contractual agreement. As home loans can run to 20+ years, you are not expected to be under debt review for the entire term of your bond or mortgage.
If your home loan is your only debt, then you can take advantage of the lower instalment for as long as you like and receive your clearance certificate at any stage.
If there is a joint asset and you are married with an antenuptial contract, then you do have the option to exclude the home loan to allow any of the participants to go under their own debt review.
The extended term that the debt review results in is not a set timeframe. Once all other debt is paid off then you should be in a much better position financially and you are legally allowed to pay an increased home loan instalment to bring the term back in line with what it was when you entered the debt review.
In conclusion, the benefits of debt review are numerous when it comes to home loans. It is an extremely powerful tool that can generate you savings, offer legal protection and, most importantly, gives you room to breathe.
Home Loans are not the only debt that you can benefit from under debt review. In fact, the savings that you can generate on vehicle finance is even better at between 25 and 30% of your current instalments. However, with unsecured debt (eg, personal loans, credit cards, overdrafts etc.) you get the biggest saving of up to 60% and on top of that, much lower interest rates. Below are some examples of the pros and cons of debt review.
Advantages of debt review
Debt review is a handy financial tool, while you are under debt review the following benefits are clear:
Instant protection from debt collectors and legal action from your creditors
Creditors are not able to repossess assets as long as you keep paying your debt review instalment
Lower monthly payments
A single affordable monthly payment
Lower interest rates
In some cases, you may be able to settle your debt faster
You will be paying less on debt and therefore have more money available to spend on living expenses and supporting your family
Disadvantages of debt review
While under debt review - the following effects are to your detriment:
You are not able to apply for more debt while under debt review
In some cases, it can take longer to settle your debt
Your credit profile will be marked as under debt review while you are under debt review so that you cannot borrow money during the process
You are bound to your debt review agreement and it can't be cancelled until you complete your entire debt review plan and settle all your debts
You still need to settle the agreed payment per month so that the national distribution agency can pay your creditors.
