What to do when you can't repay your home loan?

The continuous epidemic has taught us that we must feel comfortable if there is one thing. And many of us are buying homes to satisfy this need for security. It should go without saying that a sizable down payment is necessary to purchase a home, and the easiest method to meet this need is to borrow money from a bank or other financial institution.

Today, obtaining a loan is a quick and simple process, but what happens if the borrower is unable to make the loan payment on time? Before making an ill-informed choice, it's critical to comprehend the consequences. Let's find out what to expect if you fail to make your loan EMI payment without further ado.

What Will Happen If You Don't Pay Back Your Home Loan?

• Legal Consequences: The bank may confiscate your property if you fail to make up to three of your home loan instalments. In these situations, there are certain techniques, though. In the event that you miss the first payment due on your mortgage, they won't disturb you.
  
  The banks only issue a reminder even on the second missed instalment. However, the bank sends you a legal notice requesting the loan payback and begins the recovery process if you skip three consecutive payments of your house loan repayment.

• Home as an NPA: Your bank may list your home as a non-performing asset (NPA) if you have missed three consecutive loan repayment payments. Such assets do not bring in any revenue for lenders, which prompts them to take additional steps to reclaim their money. Since the asset is mortgaged as security for all house loans, the bank or financial institution may start legal action to enforce the mortgage.
  
  After attaching it, they have the option of selling the item through a public or secret agreement. They can make use of their rights under the SARFAESI Act or the Recovery of Debts Due to Banks and Financial Institutions Act of 1993. The fastest solution is the last one.

• Property Seizure: Following the delivery of a legal notice, banks give you around two extra 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 house loan payments before the auction date, which is one month after receiving the auction notification, 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.

• Effect on Cibil/Credit Score: Your credit score is another thing that is damaged by missing house loan payments 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 organisation in the future without a good credit score.

Important Steps to Avoid Defaulting on Home Loan Repayments

What you can do to prevent defaulting on your mortgage repayments is as follows:

• Restructure Your Loan: You may speak with your bank about how to have your mortgage restructured 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 lower home loan interest rates be applied to the outstanding balance.

• Liquidate Other Investments: You could think about selling off other investments you've held on to in case of financial problems. Bonds, stocks, and any investments in mutual funds are included in these assets.
  
  You may 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 incurring greater interest charges for late or missing payments.

• Speak with your lender to resolve the issue: You can talk to your lender about the issue if your incapacity to pay EMIs is brought on by a valid reason, such as a temporary hardship, a major medical condition, or loss of work. Try to make your lender understand your problems and persuade them that you will be able to begin loan payments shortly.
  
  To persuade the lender, you might provide your track record of timely repayment of prior debts (other than a house loan). Your lender could agree to provide you some solutions that might lessen your financial stress on an individual basis after considering your credit history and your present issues. Among these choices are:
  
  

• Grace period: The lender may grant you a brief moratorium on loan repayments, which is a period of time during which you are exempt from making EMI payments. This will allow you the opportunity to recover from your temporary problem and resume making loan payments.
  
  

• Refinancing: Restructuring your loan, where the lender can lengthen the loan term and lower your EMI amount, can also be helpful for you. You can request the home loan provider (lender), according to your age and eligibility, by choosing a longer loan period, to reset your EMI.
  
  

• Interest rate reduction: You might be given a cheaper interest rate in exchange for agreeing to a few terms and conditions. A lender may lower the interest rate on your loan as long as it adheres to the published rate grid and is not discriminatory.
  
  The only exception to this rule is in the event of a settlement, in which case the house loan account would be categorised as a "settled" or "written off" (partially or totally) account.
  
  Case-specific interest rate reductions to levels below the rate grid, however, are neither permitted nor common. In this scenario, not only would the bank have to declare the loan a write-off, but your credit score would also suffer.
  
  

Therefore, it is in your best interests to avoid getting into legal trouble and to instead figure out a strategy to pay back your debt. Keep in touch with your lender and discuss any choices they may present to you.

• Dispose of the Property: This option can be your last resort for paying off your mortgage. 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.

Conclusion

First and foremost, you should always make sure that your finances are in order before applying for a home loan. Make plans for all potential "what if" situations and keep a respectable emergency fund on hand at all times. If you explain your intentions to banks and explain your circumstances, there is a strong probability that the bank will offer you a solution in order to avoid going into legal trouble.