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What To Do When You Can’t Afford Your Home Loan Repayments

Being a homeowner is a joyful moment in life. BUT!!!!! How if you’re no longer to make home loan repayment? Do you have faith in yourself that you can still make your home loan repayment after 5 or 10 years? Due to the living costs are gradually increased in Malaysia, many youngsters and first-time homebuyers are feeling the pinch as they might not be able to continue to make the home loan repayments or even buy a house.

If you are one of them, you might feel upset and thinking of give up on this house. Listen to me, don’t give up so soon! There is always have several ways to solve any problems in the world. In order not to facing bankruptcy, continue read on to get these tips to rescue your current situation;

5 Useful Tips For When You Can’t Afford Your Home Loan Repayments

Ⓐ Restructure Your Debt

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If you have been facing the difficulty to cover your home loan repayments for 3 months or above, you financial might be overburdened. Don’t freak out although its sound terrifying. Listen up, here is a method to you;

The firs step that you need to do is inform your lender about your current financial distress and request a little leeway to solve your financial issues. While, the most importantly is discuss with your lender about restructuring your loan affordability;

Here is the 3 things that you have to discuss with your lender;

1.To extend your loan tenure

You may check with your lender whether can extend the years of your loan tenure in order to lower the monthly installments. Although this way will increase the total interest costs and repayments overall, but it can increase your affordability. As other say, if you get profits from one side, you will lose something at the same time.

2.To lower interest rate

For your information, in certain situation such as market/ economy changes, bank will adjust the interest rates. Hence, you must keep watching the market changes and seek advice from bank consultant if there is possible to adjust the interest rates for you which based on your current financial situation.

3. Consider to refinance your mortgage loan 

In fact, you can consider to refinancing your mortgage loan as your borrowing amount may be able to cover your outstanding loan. In addition, refinancing can offer you the better interest rates (do your homework that which bank is suitable for refinance loan or offer the lowest interest rates) and can also help to switch your current loan type and terms. (fixed or flexible)

Ⓑ Take Advantage of Your EPF Savings

EPF Savings

Every Malaysian should have a EPF savings if they’re employed by any companies. You have to fully understand what EPF is use for. EPF savings is not your retirement fund only, but it can also allow the contributors (if you started to pay for EPF, you’re officially as EPF member) to withdrawals from second account to pay off your home loan.

In another way, you can also withdraw a little amount to reduce the borrowed amount. This method can helps you to reduce your monthly installments and not affecting your retirement fund, so, don’t worry about it. For your information, you can also use your second account from EPF savings to help your spouse to pay-off the mortgage loan.

Ⓒ Rent Out The Extra Empty Room (if all the rooms are occupied, just skip this method)

Rent Out The Extra Empty Room

If you have an empty room, you can consider to rent it out to earn extra income. This tips can help you to reduce your burden on loan repayment by collecting rental with tenant. In addition, you can charge a higher rent (reasonable) if your house is in a major city/town, or nearby college/ university/office building.

Besides, all the things you need to do is clean up the room and provide the simple amenities such as water-heater, fan/ air conditioning and washing machine. This facilities are enough to attract potential tenant to look at your room.

Other than that, you should be aware of renting the room to a complete stranger. When you’re searching for potential tenant, you may try to reaching out to your friends or relatives first. Or else, do check on the tenant’s (stranger) background such as asking for references, employment details and etc.

Ⓓ Cut Down The Unnecessary Expenses

Cut Down Unnecessary Expenses

If you’re facing shortage of cash flow, it is advisable to cut-down the unnecessary expenses temporary. Such as;

  • Satellite TV subscriptions. For example, Astro, you may unsubscribe its package temporary until your cash flow turns positive.
  • Downgrade your internet or mobile data. For example: 10GB downgrade to 3GB. I understand that many people will gone crazy if their life without internet/ WIFI, so downgrade the internet/mobile date seems like a best choice for you.
  • Ignore the fancy stuffs temporary. For example: branded shoes, handbag and cloths. Put these things down temporary as you’re currently facing financial difficulty. Only buy those things if your cash flow turn positive.

Alternatively, you can sell off your belongings that still in good condition such as clothes, handbags, books and etc. And you can find a part-time job to sustain your financial needs in short period of time.

Ⓔ Sell Out Your House (If the above 4 tips are failed)

Sell Out Your HouseIf all the above tips are failed after you tried, unfortunately to tell you that you should consider to sell out your house to limit the effects of defaulting on your housing loan. Should you have been making monthly repayments for some years, says 5 years, there is some equity should has been built on your house. It can helps to reduce the outstanding amount and can also avoid Real Property Gains Tax costs (generally known as RPGT), if you’re making profits of over 10% or RM 10K, whichever the lesser.

By sell out your house, you may gaining from it at the same time. So, be wise to use those balance amount and buy again at a later time. So, don’t be upset about it.

Source: WMAPROPERTY

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What to do if you can no longer keep up with your home loan repayments?

Young homeowners and first-time buyers are especially feeling the pinch as living costs rise in Malaysia. Below are some golden tips that can help:

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1. RESTRUCTURE YOUR DEBT

If you are experiencing difficulty to cover mortgage payments for three or more months, then you might be over-extended on your financial commitments.

The first step to resolving affordability issues would be to inform the lending bank about your current financial predicament and request leeway as you sort your money issues.
More importantly, talk to your bank about restructuring your loan affordability to improve.
Be sure to discuss:

💼 Extending your loan tenure. Check with your bank if it is possible to add more years to your loan in order to reduce the size of monthly installments.

This will increase your total interest costs and repayments overall, but it might be worth the excess fees if it can increase affordability.

💼 Negotiating a lower interest rate. As time passes, market forces and central bank policies may change the course of interest rates from when you first took out your home loan.

Thus, do consult your bank for opportunities to adjust interest rates to reflect such changes and reduce your monthly installments.

💼 Refinancing your loan. Essentially, you will be borrowing more to cover your current loan, but refinancing can offer you better interest rates as well as help modify your loan type (fixed to flexible) and term.

Moreover, if you’ve built equity on your property, you may even be able to pull cash out of it to keep you afloat in the time being.



2. USE EPF SAVINGS TO REDUCE BORROWED AMOUNT

If you have been employed for some time, you may have built up a nice in sum in your EPF account. The good news is that EPF allows withdrawals to be made from your ‘Account 2’ to pay down your home loan.

With enough funds in the account, you can choose to completely clear the loan. Alternatively, you can opt to withdraw just enough to reduce the borrowed amount. This way you will bring down your monthly repayments for better affordability and still maintain retirement savings. In addition, you may also withdraw to help your spouse pay off the home mortgage.


3. RENT A ROOM OUT

You could collect up to 30% of your loan installment if you have a well-maintained home and let out the most attractive room in your home, usually the master bedroom with attached bathroom.

Furthermore, you would be justified to charge a higher rent if you live in a major city or town, are located near a college or office building and if you can provide extra in-house amenities like a water-heater, air-conditioning and washing machine.

It’s a good solution if have a spare room but remember to stay safe by performing your due diligence especially if renting to a complete stranger.

To reduce the risk, try reaching out to friends or family when looking for tenants. Alternatively, if your tenant is a stranger, do conduct a background check by asking for references, employment details, and perform a basic research of them online.


4. MANAGE SHORT-TERM CASH FLOW PROBLEMS

When dealing with a shortage of funds, it’s quite possible that you are simply living above your means. You can improve money matters by striping down to the bare minimum. Here are some examples to help you trim redundancies and get a hold of cash flow issues:

💼 Cut unnecessary utilities such as cable and satellite TV subscriptions.

💼 Downgrade your internet and telephone services.

💼 Consider switching to prepaid plans and reduce monthly allocations altogether.

In addition to minimising overall expenses, look for more ways to bring in cash by:

💼 Selling off belongings that are still in good condition but barely see any use. Clothes, books and appliances can fetch a handsome sum to help sustain your financial needs in the short-term.

💼 Finding a part-time job or utilizing your special skills to earn more.


5. CONSIDER SELLING THE PROPERTY

If all else fails, you may need to consider selling your home to limit the effects of defaulting on your loan. If you’ve been making payments for more than five years, hopefully some equity has been built on the home to enable a reduction in the owed amount as well as to avoid Real Property Gains Tax costs (if you are making profits of over 10% or RM10,000, whichever the lesser).

It’s not necessarily a bad thing to sell the property – perhaps you just aimed for too much too soon, so don’t fret! By selling your home and possibly gaining from it, you are placing yourself in a strong position to buy again at a later time when you are more ready and able.

Source: PropSocial

Thus, it is important to take stock of ALL your expenses before circumstances are dire and work out a realistic budget.

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