The Home Loan EMI is a substantial payment that must be made on schedule. You may fail to make your house loan EMI payment despite your best efforts due to unforeseen circumstances such as job loss or a medical emergency. Are you aware of the implications? Continue reading to find out everything there is to know about it.
Home loan equated monthly payments (EMIs) account for a sizable portion of many buyers’ monthly expenses. So, what happens if you find yourself in a scenario where you are unable to consistently pay your EMIs? This could be due to, among other things, a family emergency or a job loss.
It is critical that you not bury your head in the sand. If you do not make your EMI payments on time, interest will be charged to the total amount outstanding. This indicates that your loan will most likely increase in cost over time.
What happens if you miss your Home Loan EMI due date(s)?
A misplaced house loan The ramifications of EMI(s) differ depending on your current situation. However, you will almost likely face the following consequences:
Negative Impact on Your CIBIL Score
The CIBIL Score is a credit rating statistic used by lenders when making loans to borrowers. Your CIBIL Score, as you may be aware, represents your financial stability and credit history. Your credit score falls when you miss an EMI or fail to pay your payments on time. The score may drop by 50 to 70 points for each missed EMI.
Your CIBIL Score might rise over time if you practice good credit management. When you miss a Home Loan EMI, lenders post remarks or assessments on your credit report. Even if you have a good CIBIL Score, negative comments can harm your chances of obtaining a loan in the future.
Reduced Prospects for a Home Loan Balance Transfer
If you skip two or three EMI payments, it would be challenging to acquire a house loan balance transfer. This means you’ll miss out on a chance to refinance your loan at a lower interest rate. You will be labeled as high risk if you fall behind on your payments. As a result, other banks and finance companies may be unwilling to accept your house loan balance transfer loan.
Use Caution When Borrowing
Because of the aforementioned effect, you must guarantee that you are capable of repaying the loan amount borrowed. Make sure your EMI payments are less than 45 percent of your income so that you can make monthly payments throughout the duration of the loan. Because a home loan is a 15–30 year commitment, it is vital to be at ease with your monthly payments.
The risk of being classified as an NPA
If you do not pay your debts within 90 days after the last payment, your lender classifies your loan as a non-performing asset (NPA) and sends you a legal notice. If you do not make a payment at this time, your lender will notify you that your property will be auctioned to repay unpaid obligations.
What Should You Do if Your Home Loan EMI is Late?
It is vital that you do not stick your head in the sand. If you fail to make your EMI installments, interest will be added to the entire amount owed. This means that your loan will most likely become more expensive over time.
The first rule is to not panic.
You have a few choices for getting back on track. It is vital that you do not ignore the problem because doing so will just make matters worse. If you fail to make a payment, your bank will notify you immediately.
The second rule is to contact your bank.
If you are unable to make your EMI payments on schedule, tell your bank as soon as possible. If you are serious about paying your payments and have a solid track record of repayment, the bank will be willing to extend some leeway to you.
Banks routinely communicate with borrowers to uncover the root cause of payment delinquency. If the problem is legitimate, the bank will assist, and the borrower will soon resume paying the EMI.
Rule three is to seek professional assistance.
There are also some financial counseling services available. These establishments usually provide free services. They assist by examining their situation, guiding them, and providing options.
Counseling programs can help you create a budget so you can figure out how to pay your loans. They advise you on how to approach your lender about your repayments, as well as the various options accessible to you.
The fourth rule is to make a budget.
If you wish to avoid rule number three, analyze your finances and develop a budget you can stick to. Even if you are not having trouble making your loan payments, this practice will help you gain financial control.
Begin by going over your financial records and estimating all of your costs and income sources. This will help you find areas where you may cut back on spending, freeing up revenue to meet your EMI obligations. If you are going to lose your home, stay away from luxury items until your finances are in order.
Check your insurance policy to see if it covers job loss. Some insurance companies offer coverage for your home loan EMIs for three months after you quit your job. However, the job loss must be the result of a layoff or sickness. The policy does not allow for termination due to poor performance.
Can the bank seize your house?
If a borrower misses one or two EMIs, the bank will not immediately take control of the property. After three defaults, the bank will usually notify the borrower and request that he settle his debts as soon as possible.
Banks provide the borrower a two-month grace period to begin paying if the default lasts six months. If this is not done, the bank will declare the loan a non-performing asset (NPA). It can now recoup its losses by selling the property.
What exactly does the law say?
When borrowers default on their loans, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) allows banks and financial institutions to auction off residential and commercial properties. It enables banks to reduce their non-performing assets (NPAs) by employing recovery procedures.
Although banks can compel SARFAESI to recover NPAs without the assistance of a court, they prefer to do so only as a last resort. Banks are more concerned with collecting their funds than with going to court. Attaching and auctioning a residence is a time-consuming legal procedure. As a result, before taking legal action, banks must contact the borrower for at least six months.
The bidding procedure
The bank notifies the borrower after six months of consecutive failures. The notice indicates the appraised value of the property as well as the date of the auction. Normally, this auction takes place a month after the auction notice is released.
The auction price is decided by the market value of the property. Professional valuers determine the property value, which is used by the bank to determine the minimum bid price. The difference between the fetched price and the bank’s dues is refunded to the borrower.
What if you can pay before the auction begins?
Even if the bank has taken your home, you still have the option of reclaiming it. This, however, must be performed prior to the sale. Even if the auction date has been set, you can still pay your dues to keep your home. You must also pay any fees incurred by the bank in order for the auction to be announced.
Consider the following:
Many loan providers in the market now realize the hazards of life and usually advise you to get loan insurance. If you fall behind on your mortgage payments due to a loss of employment, these plans will cover your EMI for up to three months. However, it is critical to understand that this is only applicable in the event of a layoff or illness. Your house loan EMIs would not be paid if you are fired due to poor performance.
Your lender will usually notify you if you have missed an EMI payment. If you are in default for more than 90 days and your account is classified as NPA, the lender has the legal authority to auction off your house to recover the money. You do, however, still have a chance to save your house. You only need to pay your bills before the auction begins. Remember that you will also have to pay the lender for the expense of starting the recovery process.
Before taking on house loan debt, you should first assess your financial situation and plan a repayment strategy for the EMI. Missing an EMI payment on a home loan could have major financial ramifications. As a result, before commencing the application procedure, calculate your home loan EMI. You can perform this calculation using an online EMI calculator. Knowing how much you’ll have to pay each month will help you avoid late fees.
If, on the other hand, you are unable to pay the EMI due to an unanticipated event, such as job loss, you should notify your lender as soon as possible and be completely honest with them about the circumstance.