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Unable to pay home loan EMIs? Here is what you can do

Banks and NBFCs have the means to recover their dues one way or the other if the loan is not paid by you.

, ET Online|
Updated: Dec 16, 2019, 11.07 AM IST
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You may ask the lender to reset your EMI by opting for a longer loan tenure.
It's your legal and moral obligation to repay your debts including home loans but what are your options if you find yourself in a tight spot, unable to repay your dues?

What happens if you default on paying your home loan EMI?
If a bank or a housing finance company (HFC) has financed your property purchase, it has the means to recover its dues one way or the other if the loan is not paid by you. A home loan is a securitised loan, i.e., the lender owns your property until you have repaid the entire loan amount.

Adhil Shetty, CEO, BankBazaar.com said, "If you miss your Equated Monthly Installments (EMIs) for three consecutive months, the lender is within its rights to first send you reminders for payments. If you are still unable to repay your dues, the lender reserves the right to initiate the process of auctioning off your property to recover its dues as allowed by the legal framework of the SARFAESI Act of 2002."

Meanwhile, missing your EMIs and becoming a defaulter would also mean that your credit score will fall, which can make your future borrowings difficult. Therefore, you must look for ways to solve this crisis rather than attempting to sidestep it.

Here are four options that can help you repay your home loan EMIs in difficult times.

1. Use of emergency fund
Lack of income is the biggest obstacle to your home loan repayment. You may face this problem if you lose your job or other sources of income savings dry up. Therefore, it's advisable to maintain an emergency fund by either keeping the amount in a savings account or in some debt instrument such as fixed deposits.

Ideally, this fund should be at least six times your current monthly income. You could go for a bigger emergency fund savings if you want to. The emergency fund can help you pay your EMIs and keep you from defaulting.

2. Take loan insurance
There are various loan insurance plans in the market that can cover your EMIs for a short period. You can consider buying such a plan along with your home loan.

Shetty said, "A typical scenario where you will find this insurance useful is when you have lost your job. Hence, a loan protection insurance plan is a short-term measure, but beyond it, you will need concrete ways to repay your debt."

3. Raise funds by disposing of assets
If you have exhausted your income and savings and are unable to repay the loan, then you can look at other options for raising some cash. You may dispose of your assets such as gold, a car that now seems like a luxury, electronics you don't need, or withdrawn from long-term investments such as Public Provident Fund (PPF).

Gaurav Gupta, Founder and CEO, MyLoanCare said, "In case you are facing a challenge in paying home loan EMI's and finding the EMI too high to pay, you may try to reduce your EMI by making a part payment. You may sell some of your non-productive assets like jewellery kept in a locker or surplus land or a car and use the proceeds to make a one-time part payment of a home loan. This will help you get the EMI reset to a lower level."

4. Contact your lender and find a solution
When your inability to pay EMIs is due to a genuine reason such as loss of employment, a serious medical condition, or short-term difficulty, you can discuss the matter with your lender. You can try to persuade your lender to understand your difficulties and convince them that you can resume your loan re-payments soon.

You can show your track record of repaying your previous loans (other than home loan) on time in order to convince the lender. On a case-to-case basis, after an evaluation of your credit history and your current difficulties, your lender may agree to offer you some options that can ease your financial stress. These options include:

a) Grace period: A brief moratorium on re-payments of loan can be given to you by the lender, that is, a short time period during which you do not need to pay your EMIs to enable you to recover yourself from your short-term difficulty and re-start re-paying the home loan.

b) Refinancing/Restructuring of loan: Restructuring of your loan- where the lender can increase the loan tenure and reduce your EMI amount - can also help you. Gupta said, "Subject to your age and eligibility, you may ask the home loan provider (lender) to reset your EMI by opting for a longer loan tenure."

c) Interest rate reduction: A lower interest rate may be offered to you with certain terms and conditions. Gupta said that a lender can reduce the rate of interest on your loan provided such rate is non-discriminatory and is as per the published rate grid. However, case-specific interest rate reduction to level below the rate grid are neither permissible nor customary, except in case of a settlement in which case the home loan account would be classified as a 'settled' or 'written off' (partially or fully) account. "In such a case, the bank will have to recognize the loan as a write-off and your credit score would also be negatively hurt," he said.

Hence, it is in your interest to not get caught in a legal tangle and instead find a way to repay your loan. Therefore, maintain contact with your lender and go over any options you may be offered.

Points to note
  • When you are repaying a home loan, care must be exercised with your personal finances. Financial planning, budgeting, and regular saving should be a monthly affair for you so that you never default on a home loan.

  • You have 90 days to pay your dues before your loan gets classified as a Non-Performing Asset (NPA).

  • If you fail to repay your home loan and the lender is set to auction off your property to recover his dues, you can still pay your dues before the auction or appeal to the Debt Recovery Tribunal to stop the auction. Shetty said, "The law protects both the borrower and the lender. However, where the borrower is unable to continue his payments, the lender is within his rights to initiate recovery through legal means."

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