Know the consequences of default on your home loan EMI
Home loan repayment is a long-term affair, usually lasting 15 to 20 years. Paying your Equivalent Monthly Installments (EMIs) on time is important for many reasons.
However, during this long tenure, some often fail to do so due to financial problems or other difficulties. Regularly failing to repay the EMI on your home loan can lead to consequences ranging from penalties to a poor credit score.
When you first default on a home loan, lenders often send alerts via SMS, email, or even phone calls to remind you of the payment.
The bank may also impose a late fee or penalty fee for the delay. These penalties are typically 1% to 2% of the overdue amount, to be paid in addition to the EMI.
When you fail to pay EMI a second time, your bank will send you a reminder and may ask you to make the payment as soon as possible.
However, if you still fail to pay the outstanding amount for the third time in a row, the bank or financial institution will classify the loan as a non-performing asset (NPA).
The lender then initiated legal action against the defaulter under the Securities and Financial Assets Reconstruction and Reconstruction Act of 2002 (SARFAESI).
The bank will soon begin the fee collection process and send legal notice to the borrower requesting fee payment within 60 days.
In a home loan, which is a secured loan, the borrower pledges a property as collateral. If the defaulter does not pay the fee within 60 days, then under the SARFAESI Act, the lender has the right to take possession of the collateral.
Here, the bank can take possession of your mortgage even without the intervention of the court.
After 60 days when the borrower has not paid the fee, the lender sends a notice to the defaulter stating the value of the pledged property and the date of auction of the pledged property.
It should be noted that besides these consequences, defaulting on your home loan EMI also affects your credit score and, therefore, your future loan.
