Buying a home would be one of the biggest financial commitments of your life. Repaying a home loan can take between 10 and 30 years, and equivalent monthly payments (EMI) must be paid each month until the loan is paid in full.
But sometimes you might miss paying your IMEs on time, or completely miss paying a few at once for reasons like job loss or emergency medical care, as happened during the Covid-19 lockdown.
Missing EMIs for Home Loans: The Consequences
So what if you don’t pay your IME on time?
For starters, you would incur additional costs. 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 managing director of Basic Home Loan, a fintech company specializing in home loans in India.
According to Monga, these fees generally vary depending on the type of loan you have taken out for your home.
“Late fees are usually a percentage of your outstanding loan balance and are applied to your account the day after your payment is due. In addition to late fees, your lender may also report your late payment to the credit bureaus, which could impact your credit score,” Monga adds.
He advises you to contact your bank or lending agency to discuss the option and make other arrangements if there is any chance that you will miss an IME.
When will the bank seize your property?
Your bank could seize your house (property) if you do not repay your home loan, or, on any other loan, which was taken out by placing your property as collateral, if you do not pay the EMIs for two -three months of in a row.
“The bank can also seize your property if you do not respect the terms of your loan agreement. If your property is foreclosed by the bank, you will usually have the option of redeeming the property by making outstanding payments,” says Monga.
Banks normally give you a period of two months or more to repay the payments you have missed, after sending you a legal notice. If you are still in default, the bank will send you an auction notice which will inform you of the estimated value of your property. If you do not start making repayments of the home loan before the date of the auction, which is generally one month after receipt of the notice of auction, the bank will proceed with the formalities of the auction. Throughout this period, you can approach the bank at any time and come to a settlement.
What should you do in such a situation?
If you are having financial difficulty and are unable to repay the EMIs on your home loan, you should contact your bank as soon as possible. One option is to contact your lender and request a loan modification. This could mean extending the term of the loan or reducing the interest rate 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.
Monga adds, “If you’re not sure what to say or are worried about your bank’s reaction, try contacting a financial adviser for help. They can provide guidance on what to tell your bank and how best to handle your current situation. Don’t ignore your financial problems. Talk to your bank and see what solutions are available to you.