Missed home loan EMI? Know the consequences

People usually take a home loan to finance their dream purchase. As home loans are taken for the long term, there may come a time when you may not be able to pay one of your equated monthly instalments (EMIs) because of unforeseen circumstances.

If you miss an EMI payment, you may have to face some consequences in the following month while paying the missed portion along with the EMI of the next month.

The consequences will be two-fold: financial as well as reputational.

“From a financial perspective, you will be charged late fees, penalties and even a penal interest in some cases. The penalty charge is usually around 1-2% of the EMI. However, depending on the situation, in some cases, you may have to pay penal interest on the entire overdue amount for the period of default instead. This would be in addition to the late fees charged by the lender. In all, it could be a significant amount,” said Adhil Shetty, chief executive officer, BankBazaar.com.

The reputational damage can be even worse. Missing even a single EMI payment gets recorded in your credit history and harms your credit score. A single default on your home loan can bring down your score by 50-70 points. Such a situation may make you ineligible for further credit.

However, if you have missed an EMI and it is within 90 days of the last payment, it will be classified as a minor default, and you can recover from its impact if you take prompt corrective action. Pay off the missed EMI on the next due date and ensure that you do not miss any further EMIs.

“In case you have genuine financial difficulties brought on by a job loss or medical conditions, reach out to the lender and find a solution,” said Shetty. “You have 90 days to pay your dues before your loan gets classified as a non-performing asset (NPA). Work with the lender to find a solution before that. Remember, if you are still unable to repay your dues after 90 days, the lender reserves the right to initiate the process of auctioning off your property to recover its dues as allowed by the legal framework of the SARFAESI Act, 2002. So, take steps early on to avoid such situations.”

Hence, to avoid a home loan default, you can request a lower EMI with your lender and finance it more efficiently. In cases where there is a break in the flow of income, you can approach the lender and request for an EMI-free period. Banks may give you a three- to six-month waiver on EMI payments in case you have lost your job or temporarily stopped your business operations, etc. However, the lender can charge interest on the outstanding loan amount for this period later on.

Another option is to make partial payments to lower the EMI burden. This can be done using a home loan overdraft facility. Thus, whenever you have surplus funds available and an active home loan, making a part payment to the overdraft account can ease your financial burden.