Damage control: What to do when you can’t repay your home loan?

repay-your-home-loan

Buying a house on a full down payment is next to impossible with the present property prices. Home loans are the only option available to us and the added tax benefit i.e. Section 80 and Section 24 help to ease peoples mind.

While the loan makes it possible to buy a roof over ones head, it also becomes a long term commitment for the debtor to pay off. Typically the loan tenure extends for 15-20 years and over such a long time different complications may arise which make it difficult for you to repay the loan. One may lose their job, experience a decline in health, have underestimated their future requirements or overestimated their future income.

Unlike what most people fear, the bank will not foreclose a loan when an EMI is not paid. Infact, most banks would not say anything if the first EMI is delayed or defaulted. When the second consecutive EMI is not paid, the bank will send the person who has taken the loan a reminder to pay the EMI. It is only after the third consecutive unpaid EMI that the bank treats the loan as NPA. After 3 defaults banks can enforce, “The Securitization and reconstruction of financial assets and Enforcement of Security Interest act’2002” ( SARFAESI)” and start the process of recovery of property/dues.

However, this is a very cumbersome process for the bank and it would rather settle the matter as soon as possible. You would have at least six months of time before the bank would begin to auction the house, within this time you can speak with the bank and settle things without a foreclosure.

One of the first and easiest ways to obtain money to pay an EMI would be to liquidate investments which were saved for other goals. This is not a good idea though, as it would put a lot of pressure on your other monetary requirements.

Approach your bank and explain your situation to them as to why you are unable to meet your EMI. If you have lost your job or have adverse health and can convince the bank that you will be back on track with your EMI in the next 3-6 months, the bank can grant you a moratorium period of some months. If the reason you are unable to meet your monthly payments is an increased rate of interest, restructuring your loan with the bank would be a viable option. They would extend the tenure of your loan and the EMI amount would be remain the same. The option to sell your house and pay off the loan in full is also present but the bank would need to be taken into confidence and you must have been on time with every previous EMI. If all else fails, liquidating your investments should be your last resort to raise funds.

Before going for a home loan, make sure that you consider your finances very carefully and plan for any form of eventuality. Speaking with your bank and clarifying any problems which arise due to circumstances would be the best course of action as the bank would offer you some form of solution.

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