A home loan EMI may be an extremely difficult obligation to manage, when one is in financial distress. We examine what borrowers can do, in such situations

If there is a failure in the home loan EMI payment, the bank may send you a legal notice and consider you as a loan defaulter. Recently, the government of India strengthened the laws governing non-performing assets (NPAs), by giving more power to the financial institutions, to recover the NPAs. Consequently, defaulting on the EMIs can have serious implications and is bet avoided. However, certain circumstances that are beyond one’s control, such as loss of job, temporary extra expenditure or prolonged illness, may cause financial distress and make it difficult to service the home loan. There are ways to manage these temporary situations.

Default on home loan EMI and its consequences

“Every loan application today, requires a reading of your credit score. If you fail to pay the home loan EMIs, then, your credit score will take a hit. This will make it difficult, if not impossible, to avail of loans in the future. Banks generally wait for two EMIs to be missed, before they start chasing you. Banks and financial institutions are more interested in recovering the money, than in getting into legal proceedings for attaching and auctioning a house. As a last resort, a notice will be sent to the borrower, if the loan is classified as an NPA. If the borrower refuses to pay, then, the authorised officer will ask for the physical possession of the mortgaged property, by giving a demand possession notice to the borrower,” explains Ajay Jain, executive director – investment banking and head real estate group, Centrum Capital Ltd.

See also: What are your options if you default on your home loan EMIs?

How to manage EMIs under financial distress?

Experts advise that home buyers should only borrow what they can repay, after accounting for monthly expenses and also after taking into consideration enough savings for unforeseen events. Mohan Jayaraman, managing director, Experian Credit Bureau, India, maintains that by planning one’s income pattern, saving judiciously and managing credit records efficiently, one can safely sail through difficult times. Jayaraman offers several pointers on how individuals can manage their EMIs under financial distress:

• “Inform lenders about your new situation: When in financial distress, it is advisable to approach your lender and inform them about your situation. Most lenders would desist from taking any extreme action, but would try to find ways to help you out.
• Spend wisely: Apart from managing the credit obligations, spending wisely is equally crucial to survive difficult times. You could also set aside finances for such situations.
• Consult financial advisers and credit bureaus for help: If you find repayment obligations harder to manage, you can always consult financial advisers or a credit bureau, as they can guide you to maintain a good credit score and sort out one’s debts.
• Quick repayment: In order to lessen one’s financial burden, it is advisable to either increase one’s EMI payment year on year, or ensure a quick repayment of the principal amount. This would automatically lower the outstanding principal amount, thereby, reducing the interest burden on a home loan borrower.”

Benefits of opting for a home loan insurance

Experts also suggest that borrowers should take an insurance against the home loan. These policies not only take care of the borrower’s obligations towards the loan, in case of death during the loan’s tenure, but even help to pay up to three EMIs, should the borrower lose his/her job.

Finally, never hide from a banker or ignore their calls. This can only worsen the situation. Also, check if your interest rate is high and look for other options, such as refinancing the loan from other banks, or negotiating with your bank to reduce the interest rate. As a last resort, one may liquidate their existing investments, such as deposits or mutual funds, to pay the EMIs