Buying a home would be one of the biggest financial commitments of your life. Paying off a home loan could take anything between 10 and 30 years, and the equated monthly instalments (EMIs) need to be paid every month till the loan is repaid in full.
But at times, you could miss out paying your EMIs on time, or completely miss out paying a few at a stretch for reasons, such as job loss or emergency medical care, as happened during the Covid-19 lockdown.
Missing Home Loan EMIs: The Consequences
So, what would happen if you fail to pay your EMI on time?
To begin with, you would incur additional charges. Second, your credit score would take a hit. “Finally, you could risk losing your home if you fall too far behind on your repayments,” says Atul Monga, founder and chief executive, Basic Home Loan, a fintech company for home lending in India.
According to Monga, these charges usually vary depending on the type of the loan that you have taken for your home.
“The late fee is typically a percentage of your outstanding loan balance, and it is applied to your account the day after your payment is due. In addition to the late fee, your lender might also report your late payment to the credit bureaus, which could impact your credit score,” Monga adds.
He advises getting in touch with your bank or lending agency to discuss the option and make for alternative arrangements if there is a chance that you could miss out on an EMI.
When Will Bank Seize Your Property?
Your bank could seize your home (property) if you fail to the make the repayments on your home loan, or, on any other loan, which has been taken by placing your property as a collateral, if you fail to pay the EMIs for a stretch.
“The bank may also seize your property if you violate the terms of your loan agreement. If your property is seized by the bank, you will typically be given a chance to redeem the property by making payments that are past due,” says Monga.
Banks would normally give you a period of two or more months to repay any instalments that you have missed, after it has sent you a legal notice. If you still default, the bank will send you an auction notice which would inform you about the estimated value of your property. If you do not start making the home loan repayments before the auction date, which is generally one month after you have received the auction notice, the bank would go ahead with the auction formalities. During this entire period, you can approach the bank at any time and arrive at a settlement.
What Should You Do In Such A Situation?
If you are facing financial difficulties and are unable to pay your home loan EMIs, you should reach out to your bank as soon as possible. One option is to approach your lender and request for a loan modification. This could involve extending the loan tenure or lowering the rate of interest on your home loan.
Many banks are willing to work with borrowers to find a solution, whether that means deferring payments, or providing other forms of assistance.
Adds Monga: “If you are not sure what to say, or are worried about how your bank will react, try reaching out to a financial advisor for help. They can guide what to say to your bank and how to best navigate your current situation. Don’t ignore your financial problems. Talk to your bank and see what solutions are available to you.”