A home loan is a long-term financial commitment and can be difficult to manage when someone is in financial duress. If you fail to pay your home loan EMI, the bank might send you a legal notice and list you under loan defaulters. In recent times, the Indian government strengthened the laws governing NPAs (non-performing assets) by bestowing more power to banks and financial institutions when it comes to recovering NPAs. Simply put, defaulting on the EMIs can have severe implications and it is best that you do not have to walk down that road.
Having said that, certain situations and circumstances are not under anybody’s control. For instance:
- Prolonged illness or any kind of temporary expenditure
- Loss of job
- Currently, the COVID-19 lockdown that is causing financial distress to people from all strata of the society. There are massive layoffs in India and across the globe. Businesses are shut and incurring heavy losses. Entrepreneurs are almost on the verge of permanently closing down their business.
Therefore, such things are unpredictable and can make it very difficult for someone to uphold the commitment of paying the home loan EMI. Luckily, there are ways to manage these situations.
So, if you have taken a home loan to purchase a high-end residential flat in Kolkata and find yourself in a tight financial position, here are a few things that you can do.
- Inform the bank/financial institution of your situation
When you find yourself in an unfavorable situation, it is best to come clean. Let the bank/financial institution know of your problems. Most lenders will consider your situation and try to help you, rather than taking any strict actions against you.
- Consult professional financial advisors
If you find yourself in a situation where you cannot pay the home loan EMI, you can reach out to financial advisors. They will assess your earnings, assets and pending loan amount, and provide you a solution where you can maintain your credit score and sort out your debt.
- Home loan insurance
You can take an insurance against your home loan. The home loan insurance policies take care of the obligation of the borrower towards the loan, in case of the borrower’s death during the tenure of the loan. Furthermore, it helps borrowers pay up to 3 times EMI, if the borrower loses his or her job.
- Budget your spending
Buying a 2 BHK flat or a spacious 3-bedroom apartment is not something that you decide suddenly. It is a planned investment. So, you have to start saving from before.
Spending wisely not just applies to when you find yourself in a difficult situation, but it should be followed as a mantra of life. You need to carefully analyze your monthly earnings and create a budget. This will help you in saving some funds for a rainy day.
- Quick repayment of home loan
You can lessen your financial burden by increasing your EMI payment year on year. Alternatively, you can make sure a quick repayment on the principal loan amount. This will lower your outstanding principal amount automatically, and therefore, reduce the burden of interest on the home loan borrower.
- Leverage the moratorium period
On March 27th, 2020, the RBI (Reserve Bank of India) announced major relief to borrowers of home loan in light of the coronavirus crisis. RBI deferred EMI payments under a 3-month moratorium period, along with bringing down the repo rate to 4%.
In May, the loan moratorium was extended by the RBI to another 3 months and this means that you have till 31st August, 2020 to pay your home loan EMIs. Banks have been advised by the RBI not to consider late payment of long-term loans as NPAs between March and August.
However, even though you have earned yourself a 2-month relaxation and late repayment of EMI won’t make you a defaulter, note that you still have to pay the bank interest on your EMIs.
Some more ways you can pay your home loan EMIs include:
- Withdraw money from your Provident Fund account
- Use the money from your RD (recurring deposit) and FD (fixed deposit)
- Use the money from your severance package, if you have received a severance package from your company when they let you go
- Liquidate your assets, such as gold
Repayment of home loan is crucial if you don’t want to face the following consequences:
- Failure to pay the home loan EMIs results in your credit score taking a hit
- A poor credit rating means that you might never be able to avail loans in the future
- Generally, banks wait for 2 missed EMIs, before they start chasing the borrower
- If your home loan is classified as an NPA and you still refuse to pay, the bank will assume physical possession of your mortgaged property
So, this is how you can manage your home loan EMIs during the financial crisis. If you just make wise financial decisions and create a contingency fund from before, the 3 BHK apartment of your dreams will be yours. Additional information: If you had taken a home loan right before the lockdown to purchase a 2/3 BHK flat in Kolkata, you can complete the registration of your property, thanks to e-registration. West Bengal is among the first few states to launch e-registration of property, and this is done to provide relief to both property developers and homebuyers.
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