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Avoid Defaulting on Your Home Loan EMIs


Defaulting on a home loan is certainly an unfortunate situation caused by unknown circumstances for any individual. Any default on loan repayment is not considered good by lenders, as it negatively impacts one’s creditworthiness as well as credit or CIBIL score. Lenders consider a home loan default wherein the borrower fails to make three consecutive EMIs or fall short of 90 days in repaying loan EMIs (Equated Monthly Instalments). That does not mean that the lender will seize the property instantly. As a first step, banks send legal notice to the consumers after they have missed at least three EMIs. Lenders request them to pay the EMIs immediately or legal action will be taken against them.

However, if the borrower by himself/herself approaches his/her respective bank and explains the valid reason for non-payment of EMIs like loss of job, medical urgency, accident, financial crisis, etc. banks do consider his/her valid reasoning. Afterwards, banks propose to restructure EMIs and extend borrowers’ home loan tenure. In special cases, banks are compelled to sell-off the property of the borrower. However, consumer can receive profit-on-sale, only if the property is sold within a span of three years. If not sold within three years then the consumer is not entitled to get the profit-on-sale.

Under the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act), any lender has the authority to sell or seize borrower’s asset(s), if he/she is unable to pay principal amount after home loan becoming a NPA (Non-Performing Asset). Home loan becomes NPA when a borrower is unable to pay the principal amount and the interest in 90 days.

Let’s understand some important measures to avoid defaulting on your home loan EMIs    

Loan Restructuring – In case of temporary job loss, illness or accident, consumer can approach lender with the valid documents to support your reason that the issue is temporary and shall continue to repay the home loan with other credit line having good history. Therefore, as per the discretion of the lender and considering your situation, lender may restructure or reschedule your home loan. This service offers some extra time for you to resume loan repayments of balance EMIs.

Loan Refinancing – Due to some unavoidable reasons there could be a hike in the interest rates from the directive from RBI and hence could result in the increase of EMIs. Thus, to avoid any increase you can opt for loan refinancing, as in this you have an option to check, compare and choose the best available interest rates that could be from some other bank that can lower your existing EMIs and further help in saving money.

Financial Planning – Balance between income and expenditure should be maintained before applying for a home loan. Home loan requires majority percentage of your income to be repaid in the form of monthly instalments for years. So, it is important for you to know the affordability of the amount of EMIs that you need to pay for long-term. Budget for home expenses should be kept separate before deciding on the EMIs from your monthly income, as it makes you financially secure at least for your monthly home and family welfare expenditures.

Choosing Lower Interest Rates – This is ideally the foremost and most important of all the options, as checking, comparing and selecting home loan deal at lower interest rate will definitely ease your repayment tenure. It will be in your budget and eventually lot of money shall be saved in the form of additional interest rates on EMIs and balance loan amount.

Paying an extra EMI every year – An extra EMI per year could gradually bring down your overall cost of loan amount’s interest rate, if practice followed for as long as the loan tenure is.  An extra EMI in a year could be tough to manage but this practice is very beneficial in the long run, as home loan is an association with banks for many years to come.

Liquidating your Investments – In times of financial crisis, to overcome the difficulty of insufficient funds, it is better to liquidate your existing investments like fixed deposits, mutual funds, provident funds or any other deposit to pay-off the banks to retain property before it is taken over by banks.

Requesting for Grace Period – Lenders do understand valid problems or misfortune that could be faced by their customers. As it’s an association of lot many years, so it is understood that borrower may face difficulties like loss of job, financial crunch, and medical urgency or illness in family, etc.  Therefore, considering these problems banks do try to extend the loan period by providing grace in the loan repayment by extending loan tenure. Grace period shall be provided by lenders, but some penalty shall be definitely attached with this benefit.

Disposing your Property – If in a situation when a borrower is unable to repay the home loan, then discussing it with bank/lender could be a wise option. Banks will recommend few good options to sell-off your property and further suggest you to opt for another loan of lesser amount for comparatively smaller house at same or some another location.

However, defaulting on home loan EMIs could be definitely avoided, if these simple measures are followed dedicatedly. No borrower wants his/her property to get sold-off by any lender because of any reason, as lot of his/her dreams are attached with the property for which the home loan is taken. Even banks are not in favour of seizing the property, as they also understand borrower’s need and requirements, but in special cases selling-off the property is the last option left with them.

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