Given current property prices, it is difficult to contemplate purchasing a home with a full down payment. In today’s world, a home loan is unavoidable. Furthermore, where there are tax advantages, such as Section 80C and Section 24, one favours the loan approach to purchase any residential property. But there’s a catch: although a loan makes it easier to buy a property, it also becomes a long-term burden that must be managed correctly. In today’s unpredictable world, when employment is not guaranteed and our sedentary lifestyle has exposed us to a slew of health issues, managing a long-term liability is a daunting challenge. Furthermore, when there are other reasonable goals to save for.
The concern now is, what if someone is unable to repay the housing loan? As previously said, it is a long-term responsibility, and individuals take out loans for a period of 15-20 years, so anything may happen during this time. Even if your loan is covered, the insurance kicks in only after the debtor dies. This predicament occurs when you either overestimate your future income or underestimate your future needs. In other words, you have not scheduled your loan repayments. Sometimes bad luck strikes, and you lose your job. Whatever the cause, you must now grasp what will happen if you fail to repay your mortgage and what can be done to control the issue. Let us first examine the consequences of not returning your debt.
The bank would act only after three months of non-payment of your EMI. After the second month of non-payment, the bank will send the borrower a letter reminding him or her to settle the debt. Only after the third default does the bank have the authority to auction the residence under “The Securitization And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act 2002.”
Again, the bank will send a legal notice for repayment of the borrowed amount. If the borrower does not repay even after this, they will send another letter outlining how much they have valued the property and when they want to auction it off, which will be scheduled after one month.
As can be seen, the bank allows the borrower up to 6 months before auctioning off the property. The borrower might use this time to meet with bank representatives to resolve the situation.
Steps to be Taken:
Step 1: Don’t be alarmed! You have not paid your bills, and now you are receiving letters from the bank threatening legal action. So, organize your paperwork and records. This should include information such as your loan amount, length, interest rate, monthly EMI, a record of prior EMIs, and so on.
Contact your bank once you have this information. As previously said, they will be ready to listen and assist you in any way they can. It is a time-consuming and costly process for them as well.
Step 2: Request a grace period. Request a grace period from the bank, claiming that you have been paying your EMIs on time but are unable to pay your debts owing to a justifiable reason such as job loss. Your preparation of all documents and declarations will be beneficial here. If you are a real borrower, the bank may examine your position and provide you a grace period with a penalty.
Step 3: Consider your alternatives. Discuss your loan repayment alternatives with the bank. You might consider refinancing your debt. In this instance, the bank might increase the tenure to reduce your EMIs. This is useful when the interest rate has risen, and you are finding it tough to repay the loan. Another alternative is to try to sell assets in order to pay off your obligations. Selling stocks, bonds, and other investments to pay off debt. You may at least pay in part to allow yourself some financial breathing room.
Missing an EMI payment is not the end of the world. However, it is always preferable to speak with the bank and pay off the debts or reach an arrangement than to have a defaulter status on your credit record, which would hinder you from obtaining further loans. Banks are there to assist you because they suffer the same consequences as you if you do not pay your bills.
Take your time, be frugal with your money, and pay off your debts.