Taking a home loan is a long-term responsibility. Considering the present job scenario in India Real estate, it is quite challenging to predict how your finances will progress over time. A home loan is not just a credit product; it is indeed a financial commitment. Such commitments generally continue for a decade or sometimes more than that. A borrower promises to pay a fixed amount to the lender for coming years which can be as long as 30 years.

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Home loans usually come with a long repayment tenor of 10 to 20 years. However, it is difficult for a borrower to predict his financial position for such a long period of time. Unforeseen events such as the recent coronavirus pandemic can snatch away steady income sources and put the borrower in the lurch where he is unable to pay his home loan.

When is a loan considered to be in default?

Home loans are repaid by borrowers in equated monthly instalments (EMIs). A bank considers a home loan to be in default when the borrower fails to repay an instalment for a period of 90 days after the last payment has been done. In clear terms, the borrower has missed EMI payments for a period of 3 months.

Does a home loan default mean that you lose complete ownership of the property?

The bank sends a notice to the borrower reminding him that his EMI payments have been missed and that strict action can be taken until he meets his loan obligations. Banks are generally considerate if the borrower comes up with genuine reasons for non-payment of loans.

The options are as follows:

1. Rescheduling the loan: If the bank feels that the loan amount is wrecking your personal finances, then it will reschedule the loan by extending the loan tenure. Though it will cut down the monthly EMI expenditure, the overall interest may inflate in the long term. However, when better times prevail, the borrower can return to its previous EMI.
2. Postpone the payment: If the cash flow is curtailed for some time due to loss of job of the borrower, the borrower can request the bank to give him temporary relief from loan repayment. The bank may permit the same but levy a penalty for dishonouring the agreed repayment time schedule.
3. One-time settlement: Banks sometimes give this option of repaying the entire debt at one go when you have surplus money. The bank waives off a part of the loan amount and asks you to pay the settlement amount at one stroke.