Delaying your home loan EMI is an unfortunate circumstance and could occur due to numerous reasons. Default due to any reason is not considered suitable by lenders as it negatively impacts your credit report and your creditworthiness. A home loan default happens when you fail to pay three consecutive EMIs or fall short of 90 days in repaying the credit.
It does not mean the lender will seize your property right away. First, the lenders send a legal notice to the user that they have missed out on three EMIs. Lenders ask for immediate repayment, or they take legal action against them. It is better if you visit the lender and explain the reason for the delay. The reason could be medical urgency, accident, job loss, financial crisis, etc. Soon after, the lender restructures your housing loan and extends the tenure as well.
In case the borrower does not make the payment despite the legal request, lenders have the authority to sell or seize the property. The asset becomes Non-Performing Asset (NPA) when the borrower is unable to pay the amount within 90 days of the notice.
Following are the ways to avoid house loan EMI default:
Loan restructure: In case you have suffered a job loss or suffering from an illness, you can carry valid documents to support your argument. It portrays that the issue is temporary and will continue to repay the amount with another credit report with a good history. Therefore, the lender might consider your situation and restructure your loan. This service provides additional time to resume the balance EMI repayment.
Loan refinance: Due to some events, there could be a rise in interest rates as per the RBI direcivest. This increases the EMIs. Thus, to avoid any more increase, you can opt for refinancing. Here you have the choice to check, compare, and choose the best available interest rate. It could be from another bank which lowers your overall EMI and further help in saving money.
Financial plan: Maintain a balance between your income and expenditure before applying for a housing loan. Remember, the EMI should not exceed 40 per cent of your salary. Hence, it is essential to know the affordability of the EMI amount. Keep the home budget aside before deciding your EMIs. You can use the home loan EMI calculator to gauge the expenses.
Low-interest rates: The most important aspect when comparing the loan schemes is low-interest rates. It eases your repayment process. The EMIs will fall within your budget, and eventually, you will save a lot of money in the form of interest rates on EMIs and balance loan amount.
Additional EMI: Paying an extra EMI every year could bring down your overall EMI interest rate. However, you have to practice this until the end of the home loan term. It is tough but beneficial in the long run.
Liquidating investments: To overcome the difficulty of insufficient funds, especially during the financial crisis, it is better to liquidate your current investments such as mutual funds, fixed deposits, PPF, and so on. This way you can retain your asset before the lender takes it.