What to Do if you can Not Pay Your Housing Loan EMIs..?

Heres how the bank / Housing Finance companies (HFCs) will react to the situation and how you can negotiate with it to resolve it.

by Mr. AMIT SHANBAUG

Buying a home is the most expensive purchase you are likely to make, so you may need help in funding it in the form of a loan.

What if you take a housing loan. But after some time, find yourself unable to pay the EMIs (Equated Monthly Instatelments) . There could be many reasons for this, from losing your job to depleting your savings for a medical exigency.

Will the bank / HFC seize your property if you miss 2 to 3 mortgage payments No, not immediately, but if you continue to default for 6 to 8  months, the bank / HFC will take over your property.

Lenders are Wiling to Negotiate..!

Attaching a property is the last thing a lender wants to do.Though banks / HFCs have the power to enforce the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI) to recover non-performing assets  (NPAs) without the intervention of a court of law, this is the last step they prefer to take.

A bank / HFC usually lets one mortgage payment default slip by, but for the next one, it will mail or letter or phone you a reminder to inform you that your payments are late.

Ms. V. N. Kulkarni, Chief counsellor,  Abhay Credit Counselling Centre, which is sponsored by the Bank of India, said, ” After 3 defaults, the bank / HFC will send a demand notice, asking you to pay your dues as soon as possible. If the borrower does not respond to any of the mails/ phone calls / letters the bank / HFC sends a legal notice through its legal departm

Mr. Rajiv Raj, Director, CreditVidya said, ” Most lenders (Banks / HFCs) take a practical view of the situation and understand how critical the home is for the individual. So, they will closely interact with the home loan borrower to understand the reason for the financial hardship. In fact,a bank will allow you to reclaim your property even after it has seized it, though this has to be done before the auction takes place.

Says Ms. Kulkarni: Even if the auction date has been announced, the borrower can come in at any stage and pay the dues to save his house property. However, if the bank / HFC has incurred any charges for announcing the auction, the borrower will have to pay these.

What are options?

^^  If you have lost your job, but are confident of getting a new one within 6 months, you can ask the bank to offer you a moratorium for this period.

^^  If your finances are strained due to some other reason, such as the EMI going up because of a hike in interest rates or  / increase in personal expenses, ask the bank to restructure your loan.

^^  To either reduce the EMI or / keep it at the same level despite a higher interest rate, you could increase the loan tenure.

^^  If you have taken an insurance product, which also provides a cover for loss of job, the insurance company will take care of the EMIs for 3 months from the date that you lost your job. For instance, ICICI Lombards Secure Mind Health plan provides a cover for 9 major medical illnesses and procedures, death and permanent total disability due to accident and loss of job. Under the plan, the insurer will pay 3 EMIs on any loan that you have taken if you lose your job. The hitch is that the job loss should be due to retrenchment, layoff or / health reasons, and not because you were fired. Also, though you can take a cover equivalent to your outstanding loan amount, the policy tenure is only 5 years.

^^   The main reason you need to start paying the EMI again, other than avoiding possession of your house by the bank, is to ensure that your credit score is not adversely affected. Nearly 30 % of your credit score is based on repayment history &  a significant part of this usually depends on how regularly you repay your housing loan, if you have taken one.

^^    Even one or / two missed payments can negatively impact your credit score, and a continuous default will dent it severely, making it difficult to get loans or / credit cards in the future. Since this is a dire circumstance, you could dip into your savings &  retirement kitty and redeem your investments to pay the EMIs.

^^   If it seems that the situation may not improve even after 6 months,a better idea may be to sell the house property. You can talk to the bank / HFC about this and use the sale proceeds to prepay the loan.

^^   Ensure that while the sale negotiations are on, you continue paying the EMIs.This will prove to the bank / HFC that you arent taking it for a ride & will ensure that your credit score does not dip.

Steps to take if you miss the EMIs..!

^^ Call your lender &  find out the options available to you.

^^ If the default is due to a hike in interest rates, ask the bank / HFC to reschedule the loan increase the tenure to keep the EMI at the same level or  / reduce it.

^^ You can ask the bank to restructure your home loan payment by taking into consideration the future income or  / by offering your savings as collateral.

^^ Make a file that includes all your monthly mortgage payments.This will convince the bank that you have been a good customer who has been forced to default due to circumstances beyond your control.

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