As per COVID 19 regulatory package of RBI, bank allows a moratorium by deferring payment of EMI/ Term Loan Instalments & Interest.
What exactly is moratorium?
Let’s be clear it is not a waiver, only defer. A moratorium only allows a borrower to defer a loan instalment, in this case, by three months. So, customers who have EMIs due between March 1 and May 31 can pay the payments later.
Will borrowers get an interest waiver in moratorium?
Not at all. Interest continues to accrue on the outstanding amount of term loans during the moratorium. The interest, which is due during the period of the moratorium, will get added to the customers’ outstanding amount. Thus, this will only increase their loan burden.
Therefore, it is advisable that one should choose for it only if they are facing a cash crunch, else it’s better to continue paying the Home Loan EMIs.
No late payment fee will be charged. If the customers do not want to opt for this moratorium, they don’t have to do anything. But if they are choosing to opt for it, then the customers will have to inform their banks. If the customer has already paid the EMI for the month of March and has opted for a moratorium for April and May, then the loan tenure will get extended by further by two months. Some banks have not provided this option and instead they have allowed customers to opt for the deferment of EMIs for the next two months (April and May).
Does this apply to credit card dues as well?
Credit card dues are also eligible for the moratorium. Interest will be charged by the credit card issuer on the unpaid amount.
Is opting for moratorium a good idea?
There are many home loan borrowers who do not have a regular source of income in cash. According to the moratorium offer, the borrowers can defer their home loan EMI payments for three months till national lockdown. Salaried individuals who might face pay cuts, delayed salaries or layoffs due to the COVID-19 lockdown, can also benefit from this facility.
But for the atter of fact, borrowers should choose to opt for the moratorium only if their salaries have been severely impacted. In any case, they will be needed to pay the outstanding amount along with interest, once the moratorium period is over. Since home loan is a big-ticket loan, this amount may become significant.
Will choosing moratorium affect my credit score?
Under normal circumstance, if loan repayment is deferred then the borrower’s credit history and risk classification of the loan gets affected. However, in this case, rescheduling of loan repayments will not be considered as a default. Therefore, it will not affect borrowers’ credit score.
What if I have already paid EMIs but would like to avail the moratorium?
Even if you have paid EMIs for all three months, you can still avail the benefits of the moratorium. You can inform your lender and the amount will be refunded to your bank account.
How to opt for moratorium on my home loan EMIs?
Each bank has its own process to provide the moratorium. For most lenders, skipping your home loan EMI payment during this period would imply that you require moratorium till May 2020.
Most banks have shared how the moratorium will be implemented. Hence, borrowers must keep themselves updated with all loan-related communication from their lenders.
Bank providing home loan charges an annual interest rate of 8-9%, and if due to any reasons, you defer the payment for two months, the cumulative interest could add up. During this moratorium, borrowers can opt not to pay their equated monthly instalments (EMIs) or credit card dues. Now, some borrowers are too happy about EMI postponement decision that they will get the time of 3 months more to repay the loan amount completely. Still, some borrowers don’t want to defer the EMIs because they can manage to pay EMIs even during coronavirus lockdown. If you choose EMI delay, then your loan tenure will be extended by 3 months.
You can use Home Loan EMI calculators to estimate the effects and what the extension of loan tenure may impact your planning. Later Home Loan balance transfer will be an option you may seek to minimize the loss.
Additional Read:- Four tax benefits you must know while repaying a house loan
Avail only if you are not able to pay your loan EMIs
So, suggestion will be to avail this moratorium only if you are not able to pay your EMIs as your loan will not only get extended, but there would be extra interest to be paid overall.
