By : Leena Mudbidri | Timesproperty@timesgroup.com| 22 September, 2022
Moratoriums are often sanctioned in response to temporary financial hardships. Here’s what you need to know about moratoriums before you apply for one
The word ‘moratorium’ literally means ‘temporary stopping of an activity, especially by official agreement’. In housing loan terminology, the moratorium period refers to the period where the borrower gets a break from making the Equated Monthly Instalment (EMI) payments on the home loan borrowed. The moratorium period signifies the short term relief a borrower can get from their lending institution to organise their finances to resume the home loan repayment comfortably.
WHAT A MORATORIUM ON YOUR HOME LOAN MEANS
As a home loan borrower, your EMI payment begins from the very month your loan is disbursed till the end of your repayment tenure. If you feel that you are not ready with your loan repayment plan, are low on finances, have lost your job, or are in between jobs and need to rejig your financial resources, then you can opt for a moratorium period as soon as you secure the home loan. The moratorium period could be for three months, six months or a maximum period of two years, depending on your lender.
Choosing a home loan moratorium period at the time when your approved home loan starts its tenure will give you sufficient time to plan all your finances, especially your expenses that include your present house rent if you are living in a rental accommodation. This period can give you the right break to complete your other property related payments such as registration, stamp duty, property management, etc.
HOW DOES A MORATORIUM HELP HOMEBUYERS?
The home-buying experience in India can sometimes be fraught with unforeseen circumstances that can in turn impact your purchase. Delay in the construction of your home and its delivery for your occupation is a major hindrance that can impact your homebuying journey. Particularly, when you are staying in a rental accommodation and servicing your home loan at the same time
So, what’s the role of a moratorium on your home loan? Most lending organisations including banks offer home loan borrowers a moratorium to relieve them of this double financial burden by giving them some time to plan their finances in order to meet their expenses as well as to prepare for EMI payments. One advantage of opting for a moratorium is that it does not affect your credit score.
IMPACT OF A MORATORIUM ON EMIS
While a moratorium offers temporary relief from EMI payments, you are still required to pay the interest amount on your housing loan, either during the moratorium period or after the expiry of its term. When you pay the interest that is charged during the moratorium period itself, your EMI remains the same while only your tenure increases. But when you pay the interest after the expiry of the moratorium period, it is added to your loan amount and adjusted through higher EMIs during the repayment period.
This is why it’s wise to continue to service the interest amount during this period.
WHAT’S THE ELIGIBILITY CRITERIA FOR A HOME LOAN MORATORIUM?
When should you opt for a moratorium and how do you qualify for one? Both these factors depend on the genuine nature of the crisis that’s causing a strain on your financial resources and hindering your monthly EMI payments. Your eligibility factor will depend on the lending institution, who will decide based on the gravity of your financial situation.
As a home loan borrower, you have several routes to financial recourse in your path to owning your dream home. A moratorium period is just one of these.
Source - Times Property