How to Avoid Defaulting on Home Loan EMIs?
Unexpected expenses or events in life can make it challenging for the borrowers to continue paying their Home Loan EMIs. Read this post for practical tips to protect you against defaulting on Loan EMIs.
Life is full of ups and downs. No matter how cautiously you might have planned your Home Loan repayment, unexpected expenses or events can derail your plans. Home Loan EMI defaults lead to penalties and could negatively affect your credit score.
But, even if you find yourself in a spot where you cannot pay the EMIs, there are many things that you can do to avoid defaulting. Here are 4 tips that can help:
Request a Grace Period or Loan Moratorium
If you know that your current financial problems won’t last more than a few months, requesting a grace period or Loan Moratorium from your Home Loan Lender could be an excellent solution. If you’ve been religiously paying your loan EMIs until now, the loan provider might offer you a grace period to help you recover from the situation. A few important points you must keep in mind.
- It is fully up to the Lenders' discretion whether or not they’d like to offer any grace period
- The moratorium does not impact your credit score
- While you don't have to pay any EMIs during this period, the interest will continue accruing to the total outstanding balance.
Request Loan Restructuring
If the financial situation persists for more than a few months, Loan Restructuring can be an option. With this, the borrower and the lender negotiate the loan terms, so that both parties come to an agreement.
For instance, restructuring might involve increasing the loan tenure to reduce the monthly EMI amount. However, a longer tenure will lead to higher overall interest payments. So, do adequate research and calculations before considering this option. The lender can also charge a restructuring fee.
Refinance your Home Loan
If EMIs consume a significant portion of your monthly income and make it difficult for you to manage your household expenses, you can also consider Loan Refinancing. The facility allows borrowers to switch their Home Loans to another Lender, generally one that is offering housing loans at a lower interest rate.
The monthly EMI amount will reduce, after switching to a cheaper Home Loan. However, it is important to evaluate the overall cost difference when refinancing.
Consider a Loan against Security
If none of these options work for you, you can also consider taking a loan by pledging your Securities. Top lenders now offer loans against Insurance Policies, Shares, Mutual Funds, etc. You can use the loan amount to continue paying your Home Loan EMI.
As these are secured loans, wherein your investment acts as a collateral, the interest rates are generally lower than unsecured loans. Once your financial condition stabilises, you can also make a lump sum payment to close the loan taken against investment.
Protecting yourself against Home Loan default
Borrowers should avoid defaulting on their Home Loan EMIs as it could lead to severe consequences. But, as Housing Loans are repaid over a tenure of 15-20 years or even more, it is not uncommon for the borrower to find themselves in a temporary situation, where they cannot pay the EMIs.
If you are struggling financially due to an unexpected event, the best way out is to discuss your situation with your Lender. If your problem is genuine, the Lender will most likely work out a solution that is acceptable for both the parties.
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