Managing your home loan in India during COVID-19

COVID-19 has turned our lives upside down. The best thing we can do to survive this pandemic is to stay home and adapt to this new lifestyle. However, as the pandemic has forced most businesses to shut down, many are dealing with lay-offs and loss of income. This makes people worried about the implications of paying the home loan and other loans in India during this financial crisis.

RBI’s relief on home loan payment:

Many people are finding it difficult to repay home loans during this critical time. To ease the repayment pressure on the borrower, RBI had announced a 3-month moratorium on EMIs for all term loans from March 1 to May 31. Today, there has been another announcement from the regulatory body of an added 3-month extension to the initial announcement. This 6-month moratorium applies to all term loans including home loans, across all types of banks. It includes rural banks, small finance banks, co-operative banks, microfinance companies, housing finance companies, and non-banking finance companies.

This helpful move by the RBI allows you to spend money on essentials like groceries and medicines. It also gives you the much-needed time to understand and reassess your income status.

Concerns regarding the home loan moratorium:

• The 3-month moratorium(extended by another 3 months) is not a waiver for your home loan in India. By availing this moratorium, you’re just shifting your payment schedules.
• If you opt for the moratorium for your home loan, the interest will continue to accrue on the outstanding portion of your home loan throughout the moratorium period.
• Availing the moratorium is manual, you need to approach your lender and show proof that your income has been affected to apply for the extension.

Should you apply for the moratorium on your home loan repayment?

This is a great relief for borrowers who are struggling to repay their home loans during this lockdown period. But you need to make an informed choice in availing perks like these. Here are a few things you need to consider before you apply for the moratorium.

Additional interest burden

Not paying home loan EMI for 3 months may add up to 24 months to your overall loan tenure. Also, the accumulating interest during these 3 months would lead to a huge interest burden over the loan lifetime. So, make sure you can endure the financial burden before availing the home loan moratorium.

Cash flow constraints

Since home loans come under secured term loans, you have the flexibility to pay a lump sum amount anytime. So, if you’re a salaried professional in India with a regular income, you can compare your cash flows with the revised payment schedules and additional interest payment. Once you have done that, you would be in a better position to make a decision on availing the moratorium.

Saving for essentials

In times of crisis like this, the situation can turn from good to worse pretty soon. It is critical to save and spend your money wisely. Even if you have uninterrupted income during this pandemic period, you need to save money to be on the safer side. Calculate your expenses, cut non-essential spendings, save money wherever you can and spend on the essentials. So, if you have uninterrupted income and want to be on the safer side, it would be wise to apply for the 3-month moratorium.

This EMI moratorium move by RBI is great for loan borrowers whose current cash flows are adversely affected by the ongoing pandemic. However, it is important that you make a well-informed decision regarding availing this 3-month moratorium for your home loan.

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