Everything you need to know about moratorium period in home loan

Everything you need to know about moratorium period in home loan

Understanding all the jargon of the financial world can be as confusing as it can be tricky. Whether you are taking a loan or opening a bank account, there are so many words and phrases that need to be googled, because, for the average layman from the non-finance background, these words are not a part of your everyday vocabulary. That said, when you enter into a financial contract of any kind, especially a high-value loan like a home loan, you need to familiarise yourself with all the financial jargon. One such term that can help you while applying for a home loan is the moratorium period. This article focuses on the moratorium period, especially with regards to home loan.

What is moratorium period?

Moratorium period is simply the period in any loan in which the borrower gets a break from making the Equated Monthly Instalment or EMI payments. It is often referred to as an ‘EMI holiday’ since there is no pressure of paying the monthly loan instalments during this period. Moratorium periods are especially common in case of education loans, where the student can begin paying off the EMI 6-12 months after completing their course since they do not have a steady income during their years at university and it takes time until they can find employment. However, lenders also offer moratorium periods in case of home loans.

What is moratorium period in home loans?   

In case of delayed construction, lenders allow borrowers to encash their moratorium period facility only if this clause is included in the home loan agreement between the lender, borrower and the property developer. For under construction properties, lenders provide a grace period of 18 months or one month post possession, whichever is earlier whereas in case of ready-to-move-in properties, the grace period is generally very short i.e. one month.

Home buyers can typically opt for a moratorium period in the event that the project they’ve invested in gets delayed and they are not in the position to double their monthly outflow for their living arrangement i.e. paying rent for the current premises they are occupying along with the home loan EMIs.

Even though the loan repayment begins the moment the home loan amount is disbursed to the borrower, they are allowed to defer the EMI payments until they are given possession of the house, in case of delayed construction. This grace period also allows borrowers to maintain their budget since it gets difficult to pay for both, home rent as well as high amount EMIs.

What is moratorium period for home loans - Things to consider?

Now that we know moratorium period meaning in case of home loans, let’s look at some factors that should be considered while opting for it.

• While this grace period sounds convenient, home buyers need to understand that they need to pay interest during this period; a separately charged amount that could be levied monthly, quarterly or be a simple interest amount.
• In case the borrower opts to defer the entire EMI amount, the interest charged during the moratorium period is added to the total amount borrowed and is adjusted in the payable EMIs. Typically, the interest can go up-to 10% of the total principal amount and interest charged.
• Moratorium period scheme is closely linked to the No EMI scheme. In the latter, the interest is paid by the developer on behalf of the buyer until the buyer get possession of his property. The lender and the developer enter into a negotiation to determine the grace period. The total loan amount remains the same but the interest levied during the moratorium period is afforded by the developer.

Final Thoughts: Remembering the meaning and definition of moratorium period as well as the existence of this facility is very important when you take a home loan. You never know when it can come to your rescue. Also, while taking a home loan it is recommended that you opt for lender offering this facility.