A Fin24 reader who has been under debt counselling managed to pay off two considerable debt amounts, but still has her home loan to pay. She wants to know if removing it from debt counselling would be of benefit to her.
I have been under debt counselling since 2017, and two of the major debts have been paid up. I am still left with the home loan. It was at 9% interest with the debt counselling.
Currently, the general interest rate is 7%. Will it benefit me to remove the home loan from debt counselling? Will it cost me extra charges?
Benay Sager, chief operating officer at DebtBusters, responds:
Debt counselling comes with significant benefits, thanks mainly to credit providers willing to offer concessions to consumers through reduced interest rates and reduced monthly fees while the consumer is under debt counselling. It is crucially important for the consumer to complete the debt counselling term to take advantage of all the reduced payment benefits and demonstrate their commitment to the process. This applies to home loans since home loans usually enjoy payment reduction and interest rate reduction while under debt counselling. Therefore, it is recommended that consumers complete their full debt counselling commitment.
A consumer under debt counselling qualifies to receive a clearance certificate once they have paid up (meaning there is zero balance owed) all of their non-home-loan accounts and are up to date on their home loan payments (meaning there are no arrears on the home loan). Once a clearance certificate is issued, the home loan payments automatically revert to pre-debt counselling monthly payment and interest rates.
In this case, the consumer implies that they have paid up all their debt other than a home loan. If this is indeed the case, the consumer should qualify for a clearance certificate (provided they are up to date with their home loan payments). The consumer should inquire about this with their debt counsellor.
If this is not the case (meaning the consumer still has non-home-loan accounts and a home loan account under debt counselling), then it is not advised to remove the home loan from debt counselling. Apart from it being legally not possible for the consumer to voluntarily "remove'' a particular account from debt counselling, it is also not advisable because the consumer would no longer enjoy the lower monthly payment and lower interest rate at 9%. Besides, reapplying for a home loan or re-mortgaging as it is commonly known is not a free exercise and would require applying for a new loan which a consumer under debt review cannot legally do.
Lastly, while the prime rate is 7%, each home loan application is evaluated on its merit, and there is no guarantee that the consumer would get a better rate than they are currently enjoying. Our recommendation for the consumer would be to explore with their debt counsellor whether they qualify for a clearance certificate (if they finished all non-home loan repayments and are up to date with their home loan) and take the conversation from there.
Questions may be edited for brevity and clarity.
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