The joys of owning a home can quickly turn to anxiety when experiencing overly taxing mortgage payments. Young homeowners and first-time buyers are especially feeling the pinch as living costs rise in Malaysia.
If this is you, don’t throw in the towel just yet. Try these golden tips and continue to relish the joy of owning your own home:
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 instalments.
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 instalments.
- 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 instalment 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 utilising 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.
Being Proactive with Your Finances
When you can no longer afford your monthly home loan repayments, it’s time to take a long hard look at your financial state.
If the reason you fell into this hardship was outside of your control, then you can consider your predicament less severe, in that a basic lifestyle readjustment may be all that is needed to accommodate your current situation.
However, if you are over-committing on your loans and constantly spending more than you make – then this may be a sign of poor money management, which in the long run could lead to more debt accumulation.
Worse still, repeated loan defaults will negatively affect your future homeownership plans.
Thus, it is important to take stock of ALL your expenses before circumstances are dire and work out a realistic budget. Being proactive instead of reactive ideally means that you will need to get into damage–control mode early on. Simply recognising the signs can make the difference between saving your home and losing it altogether.
(Written by: Desiree Nair, 30th November 2015)