These are your options if you default on your Home Loan EMIs!
Due to the high real estate prices, home loans are a convenient source of funding your house purchase. With home loans, you can choose a flexible tenure and repay through comfortable equated monthly instalments(EMIs). However, there could be situations when you are unable to pay the EMI due to various uncertainties. It could be due to loss of job, medical emergency, cash crunch, etc. But, non-payment of EMI can have severe consequences. Depending on the number of months you have not paid the EMI for, lenders can take legal action against you. But can you do something about it? Let’s find out.
What is EMI?
Equated monthly instalment or EMI is the monthly payment that you pay towards the home loan repayment within a specified loan tenure. It has two components- principal and interest.
What happens when you miss a Home Loan EMI?
When you miss a Home Loan EMI, there are two types of repercussions-
- Monetary loss- The lender usually does not react on non-payment of EMI for one or two months. It is considered as a minor default where they charge you with late fees, penalties or penal interest. However, if you fail to pay the EMI for more than 3 months, the lender sends you a legal reminder for the same and classifies your loan as Non-Performing Asset (NPA). Therefore, you must try to pay the outstanding EMIs before 90 days of last payment. After 90 days of default, if you are still unable to pay the EMI, the lender can auction your property to recover the dues under the legal framework of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
- Loss of goodwill- Non-payment of EMI can adversely affect your credit score. Default in EMI Payment is recorded in the credit report and lowers your credit score. This can jeopardize your chances of taking a loan in future.
What options do you have?
Talk to the lender
If you have genuine difficulty in paying the EMI, communicate to the lender and look for a solution. They might offer you a moratorium for three or six months. However, you would be charged interest for it.
Make partial payments
You could also talk to the lender to reduce your EMI for a while. You can use the overdraft facility and make partial prepayment as and when you have a surplus amount. You can also ask for restructuring of the loan where they reduce the loan EMI amount and possibly increase the tenure.
Dig into your savings
You can use your investments to pay the EMI. You can also borrow from your family or friends for the same.
Non-payment of EMI can have grave consequences. Therefore, always consider your anticipated income and estimated expenses for at least a few years before you apply for home loan. Also, you must have a contingency fund to prepare for such circumstances. If you are unable to pay the EMI, talk to the lender. Running away from the lender in case of default will only increase your troubles later.