What Can You Do If You Can’t Afford Your Mortgage Payments?

Going through another sleepless night thinking about your overdue home loan repayments? The possibility of losing your home can be terrifying. Perhaps you’re having trouble making ends meet because you or a family member lost a job, or you’re having other financial problems.

With the recent increases in the Overnight Policy Rate (OPR), most home owners will likely have to pay a few hundred to a few thousand ringgit more in monthly mortgage payments if you have bought more than one property on mortgage.

Maybe things are not as bad yet, but you would like to prepare yourself with all possible scenarios, just in case. For those who took out a variable rate home loan – you may want to know what your payments will be in the event the rate increases and whether you’ll be able to make them.

Regardless of the cause of your anxiety, there are ways to protect your home even in times of financial trouble. Here’s what you can do to save your struggling mortgage.

1. Negotiate with your lender

Do not be afraid to approach your bank. If you are having trouble paying your monthly repayment, your first step should always be to contact the bank that lent you the money.

It may seem hard to believe for most but the banks genuinely want to help you to meet repayments because they would like to recover their money back.

Tell the bank your problems and discuss your options with them. Be open to suggestions, such as temporary payment arrangements, lengthening the loan tenure, or even switching to interest-only repayments temporarily.

2. Cash out your EPF

If you have recently just lost your job, it may take you a few months before you can get back on your feet. One way that can help you temporarily manage your loan without an income is to make use of your Employee Provident Fund (EPF).

EPF allows its members to withdraw from their second account to reduce or redeem their or their spouse’s housing loan balance with the financial institution approved by EPF.

This is only allowed for the members (or their spouse’s) first home, and for second home if the first house is sold or disposed of ownership, but can be made once every year.

Some of the criteria of members who are permissible to do this withdrawal are:

• Members below 55 years of age at the time the EPF receives your application
• Members with at least RM500.00 of savings in Account 2.

Get more information on the process and requirements.

3. Consider using the cash value accumulated on your MLTA

Most Mortgage Level Term Assurance (MLTA) policies include guaranteed cash value over the tenure. Depending on the policy type the cash value will differ.

In times of financial struggle, and it remains absolutely important to maintain the ownership of the house, policyholders can consider cashing out on their MLTA cash value. Though it may not be much, as the tenure is not over yet, policyholders can still stave off the repayments for a month or two (depending on the policy) until they are financially stable again.

If you are unsure if your MLTA offers that, always check with your agent or the insurer to find out the amount of the cash value (if any).

4. Refinance your property

If at one point you find yourself unable to make the loan repayment and will be more comfortable with a shorter repayment, you can consider refinancing your property loan.

However, before you make the decision, review your first loan agreement and check for the lock-in period and the penalty imposed. Many home loans carry penalties for early settlement (including sale and refinancing) that force borrowers to come up with thousands of dollars if they decide to refinance within the first few years of the loan.

If you’re planning to sell soon after your adjustment, refinancing may not be worth the cost. But if you’re planning to stay in your home for a while, you should definitely consider refinancing your home to bring down the monthly repayment.

5. Sell your property

Letters from the bank threatening court action usually signify serious difficulties in paying your mortgage. Before it reaches that stage, you should consider selling your home, especially if you are not staying in the property, or if you have a family home you can move back to.

Selling your home will be able to help you pay off your home loan and get the bank manager off your back.

While the current house prices are not the highest, but generally prices for properties in the Klang Valley are holding steady. Hence, selling your home will mostly likely be able to cover your loan and may even get you some cash to help stabilise your finances.

Regardless of the reason for your mortgage anxiety, take immediate action before it becomes insurmountable. The longer you wait, the fewer options you will have. You can always contact professional debt advisors, such as Credit Counselling and Debt Management Agency.

Read More: Should I Refinance My Home Loan?

This article was first published in April 2014 and has been updated for freshness, accuracy and comprehensiveness.