The Debt Panel: 'How can I avoid defaulting on my mortgage?'

I am currently experiencing financial hardship and would like to find a way to reduce my monthly payments and avoid defaulting on my mortgage for a property I own in the UAE.

My problems began last year when I went through a divorce, a salary reduction and also had to pay for a family member’s surgery in my home country. I now have to pay Dh3,000 in alimony every month to my former spouse, deal with a 40 per cent permanent salary reduction and a huge dent in my savings.

My monthly primary expenses include my child’s school fees of Dh3,000, mortgage instalment of Dh4,000, Dh2,500 car loan and other miscellaneous expenses. I also have credit card debt worth Dh10,000 and pay the minimum amount due every month.

I work in the retail industry and used to earn a monthly salary of Dh15,000 before Covid-19 struck.

I am not trying to avoid my responsibilities and I am embarrassed that I am even in this position in the first place. I have not missed any mortgage payments to date. However, if the current situation continues, I am afraid I might default on my financial obligations because my savings are about to hit rock bottom and my expenses are more than my current income.

What do you suggest I do to reduce my expenses or increase my income? I do not want to be hounded by debt collection agents, so please help me with a few options. SS, Dubai

Debt panellist 1: R Sivaram, executive vice president and head of retail banking products at Emirates NBD

You have been going through a series of unforeseen life events that has put you in this predicament. However, it is commendable that you are looking to keep up with your financial obligations.

As a first step, connect with your bank’s mortgage loan department to explain your situation and request help with reviewing the terms of the loan to lower your monthly instalments by extending the term of the loan.

Explore options to see if there is a way to optimise the pricing on the loan by shifting to a different plan. Ask the bank if there are instalment deferral options that can be availed, which could provide short-term relief.

Given that you are in a stable job and in view of your extenuating circumstances and proactive approach, I am sure the bank will review your request favourably.

In addition, plan to actively scrutinise your monthly expenses to see how these can be optimised. As the saying goes: “A penny saved is a penny earned.” There are a number of budgeting websites that you can check out for tips on how to plan your budget and save more.

Keep a tight focus on your card spending and also review your existing car loan to see if there are reductions possible.

I wish you all the best in putting a good plan in place, along with support from your bank, to help you address the situation and put you back on a sound financial footing soon.

Debt panellist 2: Jaya Ratnani, managing partner at Freed Financial Services

This is a tough time for you personally and financially. It is great to know that you are taking the required measures to avoid any further financial liabilities and intend to fulfil your personal responsibilities.

Under UAE Central Bank guidelines, your financial liabilities should not exceed 50 per cent of your salary. Since your monthly salary was Dh15,000 before Covid-19, your reduced income must now be about Dh9,000, which makes your debt-burden ratio almost 80 per cent.

In such a situation, it would be best for you to contact your bank to reduce your mortgage and car loan instalments by restructuring the liabilities.

You can prepare a letter that explains your situation and why you are looking to restructure your debt. Also provide your bank with the related documents, such as bank statements, salary reduction letter, cash-flow position, other assets and borrowings. Your good payment history will play an important role for the bank to consider your request.

It is also important for the bank to understand that you have done your utmost to reduce your personal expenses to keep up with timely payments.

You could also consider renting out the mortgaged property and assigning the rental income towards your home loan. You may want to consider the possibility of moving into smaller accommodation.

Your car loan instalment is close to 30 per cent of your total income, which is very high. To reduce the monthly instalment, perhaps consider replacing your car with a cheaper one.

Lastly, do look for suitable opportunities as the job market is on an upwards trend and the retail industry has largely bounced back. Given your experience, there may be the possibility of finding something in line with your previous income that will help you revive your current financial situation.

Taking the right steps will surely result in improving your personal and financial circumstances.

Debt panellist 3: Nathan McFarlane, founder of AskHelpWith.com

Your situation is similar to what many people have experienced over the past year or so. It certainly is not embarrassing to find yourself in this situation; it is an unfortunate by-product of the current economic climate.

However, fear not: it is actually great that you are looking for advice before your financial issues become too difficult to handle. By relying on your savings, it appears that you have managed to keep up to date with your payments despite your difficulties.

If your credit rating is still reasonably good – about 550-plus – there may be several options to restructure or buyout your existing liabilities. You can obtain your credit report from Al Etihad Credit Bureau to check your score. I suggest you start to look at restructuring all your liabilities if possible.

Either way, rather than paying the minimum on your credit card, you should focus on paying this down as soon as possible as this has the highest interest rate. If you are paying the minimum every month, it will take you years to pay it off.

If all else fails, I would suggest looking at a secondary income of some sort to help you through this time. It is now common for many people to have two roles to help make ends meet. One positive benefit of Covid-19 is that it has made part-time remote work all the more possible. I wish you the very best of luck.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae