‘Get your loan re­fi­nanced if you can’t af­ford it’

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - The au­thor is chair­man of Anarock Prop­erty Con­sul­tants Anuj Puri ht­spe­cial­pro­jects@htlive.com

Home loans are paid in in­stal­ments which are com­monly known as Equated Monthly In­stal­ments (EMI). This is a fixed amount to be paid by the bor­rower to the bank ev­ery month as a part of loan re­pay­ment. A bank con­sid­ers a home loan to be in de­fault when the bor­rower fails to make a pay­ment and is be­hind by 90 days. In such a case, the bor­rower would have missed three pay­ments of EMI.

When the home loan is in de­fault, banks do not seize the as­sets of the bor­row­ers im­me­di­ately. They send a no­tice to the bor­rower stat­ing that the EMI pay­ment has been missed and strict ac­tion will be taken in this re­gard. Banks are ready to un­der­stand the var­i­ous rea­sons be­hind non-pay­ment of the EMIs, which might in­clude fi­nan­cial cri­sis and ac­ci­dent if the bor­rower ap­proaches the bank with an ex­pla­na­tion. Once the rea­son is con­veyed by the bor­rower or is oth­er­wise ev­i­dent to the lender, the bank re­struc­tures the EMI and ex­tends the loan ten­ure on the re­quest of the bor­rower. Only in ex­treme cases will the prop­erty be sold by the bank. If the prop­erty of the bor­rower is sold within a span of three years of ac­qui­si­tion, then the bor­rower can ex­pect to re­ceive a profit on the sale. How­ever, if the prop­erty is sold af­ter three years, the bor­rower can take the ben­e­fit of tax ex­emp­tion.

Bank con­sid­ers a home loan to be a Non-Per­form­ing As­set (NPA) when the bor­rower, in a pe­riod of 90 days, is un­able to pay back the prin­ci­pal amount and the in­ter­est. When a home loan be­comes an NPA, the bank might ask the bor­rower to pay the com­plete home loan amount.

To re­cover the home loan, lenders sell or seize the as­sets or mort­gaged prop­erty of the bor- rower. This is an au­thor­ity to lenders given un­der the SARFAESI Act (Se­cu­ri­ti­sa­tion and Re­con­struc­tion of Fi­nan­cial As­sets and En­force­ment of Se­cu­rity In­ter­ests Act) to pro­tect their in­ter­ests.

HOW TO OVER­COME THE DIS­TRESS

The bor­row­ers can ne­go­ti­ate with the lenders and re­solve it. Bor­row­ers can reach out to the banks with their pre­vi­ous bank records of re­pay­ing the loans on time and try con­vinc­ing them. Bor­row­ers can ex­plain the rea­son for not pay­ing on time with valid rea­sons like an ac­ci­dent, fi­nan­cial cri­sis or loss of job and ask for a grace pe­riod to pay back. In cer­tain cases, the in­ter­est rates might have gone up un­ex­pect­edly and be­come un­af­ford­able to the bor­rower.

In such a sce­nario, the bor­rower can ask the lender to re­fi­nance the home loan. This will lead to lower EMI but in­crease in the ten­ure pe­riod.

If there are other as­sets with the bor­row­ers such as fixed de­posits or mu­tual funds, they can be liq­ui­dated and the debt can be re­paid. Apart from all this, bor­row­ers them­selves can sell their prop­erty and pay back the amount in­stead of banks tak­ing over it and sell­ing.

PLAN­NING (TO NOT FAIL)

To avoid re­pay­ment de­fault and fi­nan­cial dis­tress, home loan bor­row­ers need to wisely pre­plan and analyse a few things in ad­vance.

The monthly outgo in the form of EMI should not be more than 50% of the monthly in­come. The loan ten­ure should be as short as pos­si­ble, as this will lead to lower in­ter­est pay­ments. Fi­nan­cial man­age­ment must be done by the bor­rower for timely and reg­u­lar pay­ment of the EMI. The credit score is im­pacted if an EMI pay­ment is missed, which im­pacts the credit pro­file of the bor­rower.

The bor­rower must keep a track of the mar­ket re­gard­ing loans and in­ter­est rates to avail and make the best util­i­sa­tion of the loan. If there are mul­ti­ple loans taken from banks, then the loan pay­ment with a higher in­ter­est rate must be paid first. Pri­ori­ti­sa­tion of loan re­pay­ment is a must.

If there is any bonus re­ceived or profit made in an in­vest­ment, then the amount should be used in re­pay­ing the loan rather than in spend­ing such funds on less crit­i­cal mat­ters.

HT FILE PHOTO

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