What to Do When You Can’t Afford your Mortgage
With interest rates increasing and an uncertain economy and jobs outlook, paying a hefty mortgage can take its toll on our finances. While the idea of home-ownership is deeply ingrained in our psyche, paying thousands of dollars for our home mortgage per month can cut deep into our bank accounts and create a huge impact on our finances. In fact, in the current environment of rising interest rates, falling property value and job retrenchments, mortgages may become increasingly unaffordable to some of us. If you are starting to struggle with the monthly home loan repayments, what can you do other than taking the extreme step of selling your house?
1. Refinance/Reprice your Mortgage loan
One of the best ways to reduce your monthly repayments is through refinancing or repricing. Refinancing is the process of getting a new mortgage in order to reduce the monthly payments. Your new mortgage plan should come with lower interest rates compared to your current one.
A lower interest rate can have a substantial effect on monthly repayments, even if it is just a few percentage points lower. Start by asking your current bank if they have any better home loans to offer, or you can look at our list of home loans to select the ones that suit your needs best.
2. Rent out a vacant room
One of the best ways to make use of your home to earn a passive income is to rent out a vacant room, or even the entire apartment (if you’ve got somewhere else to stay). The rental income you collect can immediately help relieve some of the pressure of having to pay the monthly repayments. Depending on your home location, type (condominium or HDB), cleanliness and the furnishings you provide, the rental price can vary rather widely. You should also look into sprucing up your home with some cleaning, re-painting or home-staging so that you can ask for a better price. Lastly, don’t neglect the power of a well-taken photo with great lighting when you put it up for advertisement!
Another alternative could be to rent out your entire home and rent a smaller place that’s cheaper in order to earn more rental income. Renting a single room in a condominium would probably cost you $1,200, but renting out the entire apartment can probably earn you more than $3,000!
3. Downgrade to a smaller home
If you find that you can’t afford the mortgage on your home due to a change in financial situation (e.g retrenchment), then perhaps you should look at downgrading your home. Of course, you need to consider carefully all the costs involved and whether it makes sense to go through all that hassle.
4. Extend the loan tenor
Currently, the maximum loan tenure for a bank loan for a private property is 30, given that the sum of loan tenure and age of borrower at the time of loan application does not extend beyond 65 years.
If you are thinking of extending the loan tenor in order to reduce the amount of monthly repayments, you can do a transfer of home ownership to a younger applicant with a fractional purchase.
Take for example, James, who is 50 this year, and wants to include his wife as a joint-owner in the condominium he owns. Assuming his wife is 35 years old, he can consider getting her to buy over part of the property and extend the tenure of their property loan to up to 30 years. This would likely result in a lower monthly repayment as the total loan amount is stretched out over a longer period of time. The downside of this is that a longer loan tenure also means you pay more interest over the long run.
