home loan emi


Rising prices of real estate are making affordability out of reach for many, particularly for those in the lower and middle-income groups. It is not easy to pay a full down payment to purchase a home. Hence, a home loan is an easier option to buy a home, especially for those who do not have enough funds to pay a full down payment. They can take a home loan and repay it in the form of EMIs (equated monthly instalments) stretched over several years. This eases the burden of paying in full for buying the property. You can also avail of tax benefits on a home loan.

Housing loan are typically opted for a long tenor of about 15-25 years to reduce the monthly burden on an individual. Since a home loan continues for several years, borrowers must plan their finances very carefully. Opt for a home loan amount only after calculating your finances and future expenses. One way to know your home loan liability is using a home loan EMI calculator. The calculator will help you evaluate your earnings and the exact EMI that must be repaid every month for the stipulated tenor, you can also plan your repayments accordingly. Knowing your EMI in advance can help you plan your finances and keep yourself prepared for unforeseen situations, such as medical emergencies, job loss, etc. Missing out or defaulting on home loan EMIs will have repercussions. In this article, we discuss these repercussions. 

What Will Happen if You Fail to Repay Your Housing Loan?    

It is normal for people to experience a situation where they find it hard to pay their home loan EMIs. Many times, people miscalculate their future income flows and apply for a bigger loan amount than they can afford, which leads to trouble later, especially when growth doesn’t materialise. Failure in home loan repayment can hamper your reputation and can get you into legal complications leading to mental stress. You will be charged with a penalty of 1-2% on the EMI amount and late fees. In the worst-case scenario, failure to pay EMIs leads to auctioning off the mortgaged house or repossession by the bank. In such situations, the bank follows a certain process before taking these extreme steps for repossessing your property. Also, remember, that a single default at home loan repayment might affect your credit score (CIBIL) by 50-70 points. 

Failure to repay your home loan EMI can have serious consequences. Banks generally do not take any harsh measures if you have defaulted for two months in a row. And you’ll probably only get a reminder from the bank. But defaulting for three consecutive months could lead to serious consequences. In the worst case, the bank will initiate the process of seizing your property and will auction the house under the “The Securitization and reconstruction of financial assets and Enforcement of Security Interest act’2002” ( SARFAESI). The ACT gives the lender the authorisation to repossess a borrower’s home and start the process of auctioning it to recover the dues. As a final warning, the bank will send you a letter post the third month and failure to pay the amount at this point will leave them with no option, other than putting your property up for auction after a month. In total, you will have about six months before your house is auctioned. 

How Should the Borrower Manage This Situation?

  1. If you have lost your job or got diagnosed with a serious illness and that is the reason for your failure to pay the EMIs, then you can speak to the bank and request them to give you a grace period. If the bank is convinced that your financial situation will get better in the coming few months, they may decide to give you a moratorium period of 3-6 months to repay your EMIs. However, know that the bank will charge you interest on the loan amount for that period.
  2. If the reason behind the failure to pay the EMI is the increase in housing loan interest rates, then you can submit all your documents to the bank related to the loan and explain to them that you have been diligently paying all the EMIs on time previously and to consider your case and help you by restructuring the loan. They can help by extending the loan tenor which will reduce your monthly EMI burden. If the bank is not agreeing to this, then you can always consider the option of refinancing your loan to another bank with a lower interest rate and longer tenor.  
  3. The last option to get out of this situation is to liquidate your savings like insurance, investments and funds and repay the home loan EMI. If you still think the situation will not improve then you need to speak to the bank and take them in confidence and try to sell your property and repay the entire loan amount.