Finance

What Happens If You Don’t Repay Your Home Loan?

In addition to damaging your credit score, missing payments on your home loan will make it more challenging for you to obtain future loans from banks or other financial institutions. When you take out a loan against a piece of property, you must pay it back in Equated Monthly Installments, which include both principal and interest (EMIs). As long as you continue making on-time EMI payments, your relationship with the bank will be unharmed.

We occasionally find ourselves unable to meet our financial obligations because of challenges like job losses or wage reductions brought on by physical disease or disabilities. The Reserve Bank of India has imposed a six-month embargo on all term loans in order to prevent loan borrowers from defaulting on their payments.

Here is what happens if you don’t make your home loan payments.

Legal Implications:

The bank may confiscate your property if you don’t pay up to three of your home loan installments. In these situations, there are certain procedures, though. In the event that you miss the first payment due on your mortgage, they won’t disturb you. The banks only send a reminder even on the second missed installment. However, the bank sends you a legal notice requesting the loan payback and begins the recovery process if you skip three consecutive installments of your home loan repayment.

Home as LPA:

If you are overdue on three consecutive loan payments, your bank may label your house a non-performing asset. Such assets do not bring in any income for lenders, which prompts them to take additional steps to reclaim their money.

Seizing the property:

Following the delivery of a legal notice, banks often grant you an additional two months to make up any missing loan payments. Additionally, if you fall behind on the same, the bank will issue you an auction notice along with an assessment of the value of your property. If you don’t begin making home loan payments before the auction date, which is one month after receiving the auction warning, the bank will proceed with the auction procedures. You can get in touch with the bank at any moment during the course of these six months and try to settle by paying your debts.

Impact on credit score:

Your credit score is another thing that suffers if you don’t make your house loan installments on time. Banks give a bad financial report to the authorities assessing the credit score when borrowers fail to make loan payments. Before processing any of your loan applications, most banks and other financial lenders review your credit record to see how you handle your finances. It is challenging to borrow money from any lending organization in the future without a good credit score.

Here’s what you can do to avoid becoming a home loan defaulter.

Restructure Your Loan:

You can speak with your bank to learn how to have your mortgage modified in accordance with your financial priorities. You might describe what went wrong and how you intend to remedy it in order to persuade the bank of the same. Making a sound financial plan with a timeframe for paying off your mortgage may also be beneficial. You may be able to lower the amount of your EMIs or postpone them for a few months by restructuring your loan. However, in this scenario, your stay will be longer. Additionally, you can request that a lower home loan interest rate be applied to the outstanding balance.

Liquidate Other Investments:

You might think about selling other investments you have saved for dire circumstances. Bonds, stocks, and any investments in mutual funds are included in these assets. You can also borrow money from friends or relatives to pay off your mortgage and then pay it back when it’s convenient for you. By doing this, you can avoid paying greater interest charges for late or missed payments.

Dispose of the Property:

This may be the final option you consider when making mortgage payments. To carry out such transactions on your home, you would need the lender’s consent. You are to blame for this if you have fallen behind on your mortgage payments. The main benefit of selling your house yourself is that you can achieve a greater price than the bank forecasts for the auction.

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