Home Loans are Secured Loans.
Home Loans are paid back in the form of Equated Monthly Installments (EMI)
In the case of default, the property cannot be seized immediately.
Notice is served by the Bank in context of default.
Usually, after continuous default for 3 months, Banks treat the loan as Non-Performing Asset (NPA)
Consequences of Default
Impact on Credit Score – The first thing which will get impacted by the default will be the Credit Score. Impact the Credit History in a negative manner.
Other Charges – Late fee or penalties can be levied by the Bank.
Higher Interest Rate – In certain cases, the bank can also opt for Penal Interest Rates.
Difficulty in Future - Difficult or tougher to get loan. Can be charged higher interest rate.
Legal Proceeding - Banks interests are protected under The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act). It allows banks and other financial institution to auction residential or commercial properties (of Defaulter) to recover loans.
Way Out
Contact the Bank - It becomes impossible to repay sometimes because of difficulties like family emergency, job loss, medical difficulty etc. Banks handle genuine issues based on facts of the case.
Carry over - In cases where the default is due to unavoidable conditions, one can contact the bank. The banks may allow paying the coupled EMI in the next month. Late fee may be charged.
Restructuring of Loan - In cases of long term loans, the banks can be approached with genuine reason. If the banks find the circumstances valid, they can restructure the loan accordingly.
Interest Rate - Again depending on the conditions, circumstances and relationship with the lending institution, they can be approached with the request of either reduction or flexibility options in interest rates.
These options depend upon the discretion of the Bank/Lending Institution.
Loan against investment/insurance - The borrower could also take an unsecured loan, such as a personal loan. There are various loan insurance plans in the market that can cover your EMIs for a short period.
Raise funds by disposing of assets - If the unfavorable condition still persists, the amount can also be raised by selling non-productive assets.
Loan Settlement - If none of this is possible, contact the Bank for one time loan settlement. Kindly note that loan repaid is not as same as loan settled. The later one is perceived negatively.
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Contingency Fund/Emergency Funds - Before you take a home loan, it is advisable to save in an emergency fund amounting to minimum 6 months expenses. This process will always help you sail through the temporary phase.
In times of distress, kindly draw up a budget to cut off unnecessary expenses.
Hi sir, I need some information about e auction property.. can we buy that house.. is it safe to buy.. also can we take home loan for those property